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

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  • José M. Gaspar

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.

Suggested Citation

  • José M. Gaspar, 2018. "Bridging the Gap between Economic Modelling and Simulation: A Simple Dynamic Aggregate Demand-Aggregate Supply Model with Matlab," Journal of Applied Mathematics, Hindawi, vol. 2018, pages 1-13, January.
    • Handle: RePEc:hin:jnljam:3193068
    DOI: 10.1155/2018/3193068
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    Cited by:

    1. José Gaspar & Liliana Garrido-da-Silva & Paulo B. Vasconcelos & Óscar Afonso, 2023. "Local and global indeterminacy and transition dynamics in a growth model with public goods," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 22(2), pages 271-314, May.
    2. Bazán Navarro, Ciro Eduardo & Benazic Tomé, Renato Mario, 2024. "Qualitative behavior in a fractional order IS-LM-AS macroeconomic model with stability analysis," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 217(C), pages 425-443.

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