Computational Economics

, Volume 54, Issue 2, pp 575–611 | Cite as

How Many Agents are Rational in China’s Economy? Evidence from a Heterogeneous Agent-Based New Keynesian Model

  • Wei ZhaoEmail author
  • Yi Lu
  • Genfu Feng


A new Keynesian model built on an agent-based approach is considered and employed to investigate China’s monetary policy and macroeconomic fluctuations. The assumption of perfect rationality used in standard dynamic stochastic general equilibrium (DSGE) models is abandoned. The expectation’s heterogeneity, caused by agents behaving according to individual rules through adaptive learning, is one of the agent-based model (ABM) characteristics inserted into the DSGE model. Differential evolution (DE) algorithm is employed to estimate the parameters of an agent-based new Keynesian (ABNK) model, which combined the ABM and the new Keynesian DSGE models. The primary contribution of this study is that the degree of rationality in the economy has been estimated using a model with heterogeneous bounded rationality and adaptive learning. In addition, the determinacy properties of ABNK models with different degrees of heterogeneity are analyzed, which shows that the models that are determinate under the assumptions of rationality may become indeterminate in the presence of heterogeneous expectations.


New Keynesian model Agent-based model Heterogeneous expectations Adaptive learning 



We thank Hans Amman (the editor in charge), anonymous referees, Zhiwei Xu and Jun Wen for their helpful comments and suggestions. Wei Zhao acknowledges the financial support from the Doctoral Research Foundation of Northwest A&F University (No. Z109021803). Genfu Feng acknowledges the financial support from the National Social Science Foundation of China (No. 14BJY00).


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© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.College of Economics and Management of Northwest A&F UniversityYanglingChina
  2. 2.State Key Laboratory of Astronautic Dynamics of China Xi’an Satellite Control CenterXi’anChina
  3. 3.School of Finance and Economics of Xi’an Jiaotong UniversityXi’anChina

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