Simulations Agent-based models of the economy

The simulation describes an economy in which the households demand two types of consumer goods, B and C (the figure on the right shows a stylized version of the model with multiple goods). The virtual simulation time starts in January, 2000. Initially, goods of type B are more highly demanded than goods of type C, but at some point in time (January, 2045) this relation is inverted. The production structure then adapts to the new preferences of the households. In the transition phases the price system operates as a signalling mechanism and high profits and losses occur.

When the preferences of the consumers change this also alters the pattern through which money enters the business sector. The new demand is not satisfied immediately since parts of the old production structure (patterned circles) are not suitable for the new demand pattern (filled circles). Consequently, shortages and abundances arise, certain prices go up while others fall. Over time, however, a reallocation of resources occurs and the supply adapts to the preferences of the households.

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A different scenario arises when the time preferences of the households change. In this simulation the households only demand consumer goods of type B (the figure on the right shows a stylized version of the model with multiple goods), but their relative valuation of present and future money changes from the time period January, 2060 onward. After the shock the system undergoes a phase of reduced production and negative profitability as sales diminish. Yet, ultimately, the system settles into a new steady state. In the new steady state the overall price level is lower than before while real consumption is higher.

When the demand for consumer goods falls then, in first instance, sales are negatively affected at all stages. This leads to bankruptcies. Yet, with the change in time preference also the external financing conditions in the economy improve. The new abundance of credit provides the liquidity that the firms need to enhance their investments in fixed assets. Moreover, the increased availability of credit and equity allows for a lengthening of the production structure. Thus new stages of production come into being (filled circles). The gains from the division of labor, which are thus achieved, are absorbed by the newly installed processing capacity so that the total output in the economy rises.

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This simulations describes an economy in which the investment possibilities in the economy are limited. It may be considered as a short-run model. Again, the households demand one type of consumer good and their time preference changes in January, 2060. Yet, the change in time preference is now stronger than before. As in the previous setting, real GDP is temporarily suppressed after the shock and then rises above its original level. A comparison of the two simulations shows that the overall patterns are identical in both scenarios. The patterns are thus independent of the specific parameter values.

In absolute values, though, the wage level after the shock, and hence all price levels, are lower in this scenario. This is due to the fact that in this new scenario the velocity of money is reduced after the preference change. Since the banks are unable to lend out all their funds, the total amount of money that actually circulates in the economy is lower than in the previous scenario so that all prices are comparatively subdued. The different price development is also reflected in nominal GDP, whose decline after the shock is much stronger now. Moreover, the final level of real GDP is lower in this setup, which is due to the higher rate of bankruptcy that occurs in this scenario. This, in turn, is a consequence of the higher leverage that the firms use in this setup and the higher rate of bankruptcy that is associated therewith. Consequently, more goods are constantly written of.

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Browsers need to be Java enabled to view the simulations. In case the applets are not displaying correctly try adding a security exception to your browser. Instructions can be found here . Note that exception rules must be declared for entire addresses as typed in your browser.

Under construction.

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