Models

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My main research objec­tive is to develop qual­i­ta­tively accu­rate mod­els of the economy’s behav­iour. These are not an attempt to repro­duce past eco­nomic data and make quan­ti­ta­tive pre­dic­tions for the future–which is the main pur­pose of most econo­met­ric work and some neo­clas­si­cal mod­ellers. The econ­omy itself, and the mod­els I build of it, are com­plex (and affected by behav­ioural uncer­tainty) and it is there­fore highly unlikely that quan­ti­ta­tive pre­dic­tion will work.

This may change to some extent if and when more sophis­ti­cated models–like those used by mete­o­rol­o­gists– are devel­oped (though they will still suf­fer from the impact of uncertainty).

But for the mean­time, I sim­ply want to cap­ture the boom and slump nature of the econ­omy, and the ten­dency towards sec­u­lar accu­mu­la­tion of debt, plus where pos­si­ble the time pat­tern of actual eco­nomic data.

I do most of my work in what are known as Ordi­nary Dif­fer­en­tial Equa­tions (ODEs), and these are not the sort of thing that most blog read­ers would com­pre­hend; but for demon­stra­tion pur­poses, and some­times also for model devel­op­ment, I imple­ment these mod­els in the graph­i­cal sim­u­la­tion pro­gram Vis­sim. This is one of many such pro­grams (the indus­try leader is Simulink by Mat­lab, other com­peti­tors include Ven­sim and IThink; and there are sev­eral free pro­grams as well, includ­ing the sys­tems com­po­nent of Net­L­ogo and the Sci­cos com­po­nent of Scliab). I pre­fer it because it is prob­a­bly the most graphically-based of them all, and it has a free and very com­pact viewer program.

As I develop these mod­els, I will post them here. To down­load a model right click on its link: a left-click will sim­ply load the text for the model into your browser win­dow, since the mod­els are stored as text files by Vissim.

First cab off the rank is the model that is the sub­ject of Debt­watch No 29 for Decem­ber 2008. It is a model of Minsky’s finan­cial insta­bil­ity hypoth­e­sis that includes Ponzi investing:

Min­sky with Ponzi Investing

Next the model of endoge­nous money cre­ation that was the basis for the Rov­ing Cav­a­liers of Credit:

Endoge­nous Money Cre­ation and a Credit Crunch

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