Research: Modeling and Simulation of Economic Systems


This topic is motivated by the desire to understand how the dynamics of macro-economic systems depend on long-term capital investment. The financing of such investments creates lags and rigidities in economic state variables that are not easily captured within the dominant framework for macro-economic modeling, Dynamic Stochastic General Equilibrium (DSGE).  We develop an alternative approach with monetary flows as state variables, which does capture long-term financing along with fractional reserve banking and open market operations by a Central Bank. The "system memory" associated with long-term financing provides another mechanism (in addition to price frictions) for explaining the non-neutrality and associated dynamics of monetary policy.

This work is in collaboration with Ken Steiglitz and John Morgan.
Our working paper is posted at https://ssrn.com/abstract=2982988

This line of work can be traced back to the following paper, which describes our initial efforts in creating a computational model for a simple economy with two types of agents (farmers and miners) that trade gold and food through an auction mechanism. Simulations demonstrate how value-based speculators stabilize prices.

K. Steiglitz, M. L. Honig, and L. Cohen,
"A Computational Market Model Based on Individual Action",
in Market-Based Control: A Paradigm for Distributed Resource Allocation,
S. Clearwater, Ed., World Scientific, Hong Kong, pp. 1-27, 1996.