An Introduction to Economic Dynamics: Modelling, Analysis and Simulation

Description

An Introduction to Economic Dynamics provides a framework for students to appreciate and understand the basic intuition behind economic models and to experiment with those models using simulation techniques in MATLAB®. This book goes beyond the often-limited scope of other texts on economic models, which have largely focused on elucidating static equilibrium models. Comparative static analysis inhibits students from asking how the equilibrium position is achieved from an initial out-of-equilibrium position and limits their understanding of the dynamics that underlie such analysis. In this textbook, readers are introduced to ten well-established macroeconomic models – including Keynesian multiplier models, Samuelson’s multiplier and Solow’s growth model – and guided through the dynamical systems behind each model. Every chapter begins with an overview of the economic problem which the model is designed to help solve followed by an explanation of the mathematics of the model. Solutions are provided using simulation and visualisation techniques in MATLAB®, which are interwoven organically with the analysis and are introduced in a step-by-step fashion to guide the reader along the way. Appendices provide an introduction to MATLAB® along with all the necessary codes. The book is ideally suited for courses in economic dynamics, macroeconomic modelling and computational economics, as well as for students of finance, mathematics and engineering who are interested in economic models. Cover Endorsements Half Title Series Title Copyright Dedication Contents Preface Chapter 1 Introduction to Economic Dynamics 1.1 A short primer on MATLAB® Chapter 2 The Cobweb Model 2.1 Economic problem 2.2 Modelling 2.3 Analysis, simulation and visualisation 2.3.1 Cobweb plots 2.4 Concluding remarks, extensions and challenges Chapter 3 Expectation Dynamics in the Cobweb Model 3.1 Economic problem 3.2 Modelling 3.3 Analysis, simulation and visualisation 3.3.1 Cobweb plots 3.4 Concluding remarks, extensions and challenges Chapter 4 Keynesian Multiplier Model 4.1 Economic problem 4.2 Modelling 4.3 Analysis, simulation and visualisation 4.4 Concluding remarks, extensions and challenges Chapter 5 The Is/Lm Model 5.1 Economic problem 5.2 Modelling 5.3 Analysis, simulation and visualisation 5.4 Remarks, extensions and challenges Chapter 6 Debt, Deficit and Stabilisation Policy 6.1 Economic problem 6.2 Modelling 6.3 Analysis, simulation and visualisation 6.3.1 Simulation and visualisation 6.4 Concluding remarks, extensions and challenges Chapter 7 Expectation Dynamics and Hyperinflation 7.1 Economic problem 7.2 Modelling 7.3 Analysis, simulation and visualisation 7.3.1 The naive expectation model 7.3.2 The perfect foresight model 7.3.3 Analysis of the rational expectation model 7.3.4 Simulation and visualisation 7.4 Concluding remarks, extensions and challenges Chapter 8 The Dornbusch Exchange Rate Overshooting Model 8.1 Economic problem 8.2 Modelling 8.2.1 Commodity price dynamics 8.3 Analysis, simulation and visualisation 8.4 Concluding remarks, extensions and challenges Chapter 9 The Solow-Swan Growth Model 9.1 Economic problem 9.2 Modelling 9.3 Analysis, simulation and visualisation 9.4 Concluding remarks, extensions and challenges Chapter 10 An Endogenous Growth Model 10.1 Economic problem 10.2 Modelling 10.3 Analysis, simulation and visualisation 10.3.1 Stability analysis 10.3.2 Simulation analysis and visualisation 10.3.3 Discussion 10.4 Concluding remarks, extensions and challenges Chapter 11 Business Cycles I: Samuelson’S Multiplier-Accelerator Model 11.1 Modelling 11.2 Analysis, simulation and visualisation 11.3 Concluding remarks, extensions and challenges Chapter 12 Business Cycles II: The Real Business Cycle Model 12.1 Economic problem 12.2 Modelling 12.3 Analysis and visualisation 12.3.1 Solution method 12.3.2 Equilibrium solution: The optimal path 12.3.3 Optimal paths under parameter variations 12.3.4 Optimal paths for stochastic variations in parameters 12.4 Concluding remarks, extensions and challenges Appendix A Difference and Differential Equations A.1 First-order linear difference equation A.2 Second-order linear difference equation A.3 First-order linear differential equations A.4 Second-order linear differential equations A.5 Systems of linear first-order differential equations Appendix B Matlab® Codes B.1 Chapter 1 B.2 Chapter 2 B.3 Chapter 3 B.4 Chapter 4 B.5 Chapter 5 B.6 Chapter 6 B.7 Chapter 7 B.8 Chapter 8 B.9 Chapter 9 B.10 Chapter 10 B.11 Chapter 11 B.12 Chapter 12 Index