Computational Modeling of Macroeconomics

1. Computational Modeling of Macroeconomics Adam Szatrowski '12 Stephen Sentoff '11

2. Introduction • Goals • Lack of literature • Humble roots • Prototype economy

3. 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

4. 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

5. Simulation • Technical 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

6. 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

7. Key Parameters • Ratio of Firms to Households • Household and Firm endowed funds • Household wage indexation vs. consumption indexation • Workweek hour limit • Mean preference terms • Rounds of buying and selling in each period

8. Results

9. Questions