Data-Driven Economic Agent-Based Models

Abstract: Economic agent-based models (ABMs) are becoming more and more data-driven, establishing themselves as increasingly valuable tools for economic research and policymaking. We propose to classify the extent to which an ABM is data-driven based on whether agent-level quantities are initialized from real-world micro-data and whether the ABM's dynamics track empirical time series. This paper discusses how making ABMs data-driven helps overcome limitations of traditional ABMs and makes ABMs a stronger alternative to equilibrium models. We review state-of-the-art methods in parameter calibration, initialization, and data assimilation, and then present successful applications that have generated new scientific knowledge and informed policy decisions. This paper serves as a manifesto for data-driven ABMs, introducing a definition and classification and outlining the state of the field, and as a guide for those new to the field.