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