Research: Modeling and Simulation of Economic Systems
This topic is motivated by the desire to understand how the dynamics of macro-economic systems depend on long-term capital investment. The financing of such investments creates lags and rigidities in economic state variables that are not easily captured within the dominant framework for macro-economic modeling, Dynamic Stochastic General Equilibrium (DSGE). We develop an alternative approach with monetary flows as state variables, which does capture long-term financing along with fractional reserve banking and open market operations by a Central Bank. The "system memory" associated with long-term financing provides another mechanism (in addition to price frictions) for explaining the non-neutrality and associated dynamics of monetary policy.
This work is in collaboration with Ken Steiglitz and John Morgan.
Our working paper is posted at https://ssrn.com/abstract=2982988
