A review of aggregation techniques for agent-based models: understanding the presence of long-term memory

A key feature of agent-based modeling is the understanding of the macroscopic behavior based on data at the microscopic level. In this respect, financial market models are requested to replicate, at the aggregate level, the stylized facts of empirical data. Among them, a remarkable role is played by the long term behavior. Indeed, the study of the long-term memory is relevant, in that it describes if and how past events continue to maintain their influence for the future evolution of a system. In economic applications, this is relevant for understanding the reaction of the system to micro- and macro-economic shocks. Moreover, further information on the long-term memory properties of a system can be obtained by analyzing agents heterogeneity and the outcome of their aggregation. The aim of this paper is to review a few techniques—though the most relevant in our opinion—for studying the long-term memory as emergent property of systems composed by heterogeneous agents. Theorems relevant to the present analysis are summarized and their applications in four structural models with long-term memory are shown. This property is assessed through the analysis of the functional relation between model parameters. This is a post-peer-review, pre-copyedit version of an article published in Quality and Quantity. The final authenticated version is available online at: http://dx.doi.org/10.1007/s11135-014-9995-9