Research Article

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

Box 1

Dynamic AS-AD model.
AS-AD dynamic model: dy/dt=a1*dm/dt-alpha(a1-a2*beta)*(y-yn)-a1*pie
dpie/dt=beta*alpha(y-yn)
AS and AD curves: (AD) y=dm/dt-alpha(a1-a2*beta*pie (Long run AS) y=yn
y: Real output
pie: Expected inflation
a0=(c0+i0+G)/(1-b*(1-tau)+((h*k)/d) = 37.037
a1:(h/d)/(1-b*(1-tau)+((h*k)/d)) = 3.7037
a2: h/(1-b*(1-tau)+((h*k)/d)) = 0.185185
Parameter values: c0 = 10; i0 = 5; G = 5; b = 0.8; k = 0.05; d = 0.05; h = 0.1;
tau = 0.3; alpha = 0.1; beta = 1; mdot = 0.01; yn = 1;
Initial conditions: y0 = 0.05; pie0 = 0.15
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Steady-State:
Steady-state real ouput Steady state expected inflation
1.0000000.010000
Steady state actual inflation
0.0100
Eigenvalues
-0.1759 + 0.5826i-0.1759 - 0.5826i
Stable spiral.