Deterministric and Stochastic Growth in the Structural Dynamic Economic Model SDEM-2

Dmitry V. Kovalevsky

DEGIT Conference Papers from DEGIT, Dynamics, Economic Growth, and International Trade

Abstract: The Structural Dynamic Economic Model SDEM-2, a follow-up of the model SDEM developed earlier, is essentially an actor-based, system-dynamic model of a closed economy evolving under conditions of conflict of interests of two powerful aggregated actors: enterpreneurs and wage-earners. We derive the model equations and study the economic growth both in balanced (with neither idle physical capital nor unemployment) and unbalanced cases. In case of balanced growth we first consider an inflexible control strategy of enterpreneurs, then a more sophisticated nonlinear adaptive control strategy, and finally develop a simplified stochastic growth model. In case of unbalanced growth we consider the development of economy from the initial state characterized by substantial unemployment and examine the feasibility of one seemingly attractive and socially desirable control strategy. In view of simplicity of model equations, exact analytical solutions can be obtained in many cases, other cases being studied semi-analytically. Even the simplest versions of SDEM-2 are able to produce rather versatile trajectories of the economy, dependent on the values of model parameters and initial conditions.

Pages: 34 pages
Date: 2011-09
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