Agent‐based computational economics (ACE) has been used for tackling major research questions in macroeconomics for at least two decades. This growing field positions itself as an alternative to dynamic stochastic general equilibrium (DSGE) models. In this paper, we provide a much needed review and synthesis of this literature and recent attempts to incorporate insights from ACE into DSGE models. We first review the arguments raised against DSGE in the macroeconomic ACE (macro ACE) literature, and then review existing macro ACE models, their explanatory power and empirical performance. We then turn to the literature on behavioural New Keynesian models that attempts to synthesize these two approaches to macroeconomic modelling by incorporating insights of ACE into DSGE modelling. Finally, we provide a thorough description of the internally rational New Keynesian model, and discuss how this promising line of research can progress.

We examine the hold-up problem of price regulation and compare it with the monetary policy credibility problem. For both, reputational solutions are possible provided that the policymaker is sufficiently far-sighted, but the hold-up problem in regulation turns out to be more serious than the inflation bias problem in monetary policy. Even with far-sighted regulators, a reputational equilibrium with optimal investment is undermined if capital depreciates slowly and consumer demand increases slowly. These results make the Rogoff-delegation solution to the regulatory commitment problem especially attractive. The paper concludes with a short discussion linking these results to the empirical literature on utility regulatory regimes.