Agent-Based Computational Economics: Studying the Effect of Different Levels of Rationality on Inflation and Unemployment

This paper presents an agent-based computational economics model (ACE) to study demand-pull and cost-push inflation. Moreover, it studies the effect of different levels of rationality on the equilibrium price and unemployment rate. The model examines three different economies. In the first economy workers choose firms randomly, in the second economy there is loyalty between workers and firms. In the last scenario workers are persistence to find jobs. Simulations show that there is a positive relationship between equilibrium price and level of rationality while there is a negative relationship with unemployment rate. Moreover, the model is able to reproduce the behaviour of demand-pull inflation and cost-push inflation without homogeneous and perfectly rational agents assumptions.