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Journal of Applied Mathematics
Volume 2018, Article ID 3193068, 13 pages
https://doi.org/10.1155/2018/3193068
Research Article

Bridging the Gap between Economic Modelling and Simulation: A Simple Dynamic Aggregate Demand-Aggregate Supply Model with Matlab

1Católica Porto Business School, Universidade Católica Portuguesa, Porto, Portugal
2CEF.UP, University of Porto, Porto, Portugal

Correspondence should be addressed to José M. Gaspar; tp.pcu.otrop@rapsagj

Received 13 July 2017; Accepted 28 November 2017; Published 16 January 2018

Academic Editor: Oluwole D. Makinde

Copyright © 2018 José M. Gaspar. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper aims to connect the bridge between analytical results and the use of the computer for numerical simulations in economics. We address the analytical properties of a simple dynamic aggregate demand and aggregate supply (AD-AS) model and solve it numerically. The model undergoes a bifurcation as its steady state smoothly interchanges stability depending on the relationship between the impact of real interest rate on demand for liquidity and how fast agents revise their expectations on inflation. Using code embedded into a unique function in Matlab, we plot the numerical solutions of the model and simulate different dynamic adjustments using different parameter values. The same function also accommodates the analysis of the impacts of fiscal and monetary policy and supply side shocks on the steady state and the transition dynamics of the model.