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Computational Modeling of
Macroeconomics
Adam Szatrowski '12
Stephen Sentoff '11
Introduction
 Goals
 Lack of literature
 Humble roots
 Prototype economy
Our Concept
 Firms and Households
 Observe the interactions, recording prices and
quantities
 Observe key economic variables
 Inflation (Δ Price Level)
 Unemployment Rate
 Consumption
 Inventories
 Perfect competition, with imperfect information
Agents
 Households
 Use a Cobb-Douglas consumption function for Cookies
 Choose between savings and consumption
 Preferences are randomized
 Employment decisions, 2 ways
 Firms
 Use a Cobb-Douglas production function for Cookies
 Choose between labor and capital
 Seek to hold zero inventory at the end of each period
Simulation
 Technical Aspects
 500 lines of Object Oriented Python
 Graphing using MatPlotLib
 Initial State
 Generate number of households and firms with randomized
preferences and production functions respectively
 Periods
 At the beginning of each period:
 Households adjust wage expectations, affects labor supply
 Firms estimate demand using a PID controller for inventory
 The round begins, and agents engage in buying and selling
Decision Making
 Households poll 2 random firms, optimize using the
lower price
 Firms determine production based on previous demand
 Firms poll 10 random workers, optimize production
using the average wage demanded
 Households set wage rate based on previous
consumption, inflation, and wages
Key Parameters
1. Ratio of Firms to Households
2. Household and Firm endowed funds
3. Household wage indexation vs. consumption indexation
4. Workweek hour limit
5. Mean preference terms
6. Rounds of buying and selling in each period
Results
Questions