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

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.