Computational Modeling of Macroeconomics

Adam Szatrowski '12

Stephen Sentoff '11

Introduction

Goals

Lack of literature

Humble roots

Prototype economy

Our Concept

Firms and Households

Observe the interactions, recording prices and quantities

Observe key economic variables Inflation (Δ Price Level) Unemployment Rate Consumption Inventories

Perfect competition, with imperfect information

Agents

Households Use a Cobb-Douglas consumption function for Cookies Choose between savings and consumption Preferences are randomized Employment decisions, 2 ways

Firms Use a Cobb-Douglas production function for Cookies Choose between labor and capital Seek to hold zero inventory at the end of each period

SimulationTechnical Aspects

500 lines of Object Oriented Python Graphing using MatPlotLib

Initial State Generate number of households and firms with randomized

preferences and production functions respectively

Periods At the beginning of each period: Households adjust wage expectations, affects labor supply Firms estimate demand using a PID controller for inventory The round begins, and agents engage in buying and selling

Decision Making

Households poll 2 random firms, optimize using the lower price

Firms determine production based on previous demand

Firms poll 10 random workers, optimize production using the average wage demanded

Households set wage rate based on previous consumption, inflation, and wages

Key Parameters

1. Ratio of Firms to Households

2. Household and Firm endowed funds

3. Household wage indexation vs. consumption indexation

4. Workweek hour limit

5. Mean preference terms

6. Rounds of buying and selling in each period

Results

Questions