Microsimulation model of national economy MSMNE-02

Introduction

Multi-agent microsimulation modeling is a promising approach that represents economy by constructing virtual economic world with independent intelligent agents (households, firms, markets, etc)  which behave like their real-life counterparts. Macroeconomic variables, such as CPI or GDP, are formed by aggregation of all transactions in the virtual economy.

MSMNE-02 was developed as MS Excel program, so that all interested researchers can “play” with the model and easily integrate their own statistical data. The model is free for download and use.

MSMNE-02 is the result of redevelopment of the microsimulation model used in my thesis “Transition processes in industrial economy: content and methods of structuring”. Special thanks to Prof. M. Gurevichov (NTU “KhPI”, Kharkiv, Ukraine), Prof. Dr. G. Schwödiauer (Otto-von-Guericke-Universitaet, Magdeburg, Germany) and Prof. A.Wörgötter, (Institute for Advanced Studies, Vienna, Austria) for their support and ideas.

General structure of the model

 

There are three branches in the model: agriculture, industry and services. Each branch contains one or several firms. Each firm consumes four resources (labour and output of three branches) and produces one output resource according to the branch it belongs to.

Households consume three types of resources and “produce” labour force as an output.

Exporters represent consumption of foreign countries. Exporters consume three types of resources and  “produce” foreign currency as an output resource. Importers “consume” foreign currency and “produce” three types of resources.

Resources can be bought or sold on the appropriate market. Market (as an agent) maintains some reserve of resource and adjusts price to balance demand and supply.

State collects taxes as a share of firm’s output and distributes tax revenue as transfers to households and intervention into foreign currency market to keep exchange rate stable when import does not equal export.

Input-output model

Initial conditions of the microsimulation model are derived from the static input-output balance model. Input-output balance model has the following structure:

 

The core of this input-output model is the matrix of intermediate consumption (matrix XA). The row of this matrix defines consumption of the “row-branch” resource by the “column-branch” firms. The column of this matrix shows which “row-branches” consume output resource of the “column-branch” firms. In fact, matrix XA on the chart is a result of multiplication of transposed vector X (total output) by matrix A (input-output coefficients). Multiplication of matrix A by vector X gives vector AX (intermediate consumption).

Sum of intermediate consumption (AX) and final consumption (C+I+Ex+Im) equals to the total output (X)

Vertical structure of the model (XA, W, T, D) represent the structure of the value, produced by the firm of the “column-branch”. Total value (X) is a sum of resource costs (XA) and value added ( (W)ages, (T)axes, (D)epreciation).

Depreciation (D) of each “column-branch” is transformed by investment matrix (B) into investment demand (I) for resources of “row-branches”. Total depreciation equals total investment.

Taxes (T) are used to balance import and export. Remainder of the taxes via transfers to households together with wages (W) forms private consumption (C). The following rule should hold:
Taxes (T) + Wages (W) = Private consumption (C) + Export (Ex) + Import (Im)

It is not a trivial task to create balanced input-output model that meets all the above requirements. Special computer algorithm based on the multicriterion optimization was developed to transform available statistics and assumptions into balanced IO model. This algorithm in form of MS Excel program is freely available upon request.

Microsimulation model

IO model is used as a starting point of the microsimulation model. The values from the IO model define initial output of firms, structure of intermediate and investment demand of the firms, structure of private consumption of households, etc. Balanced IO model is static and rigid: none of the numbers can be changed without changes in all other coefficients. The microsimulation model, on the contrary, is elastic: IO model defines only stationary equilibrium state which can be disturbed by external shocks.

To make microsimulation model elastic, each agent (firm, household, market) has its own elasticity coefficient for demand and supply. Therefore, demand structure derived from IO model is not rigid, it only determines some “optimal”, equilibrium structure.

 

User interface description and features

The model is realized a MS Excel workbook and imbedded macros  (Visual Basic). The interface of the model looks like this:

 

There are tree buttons to control simulation process: start, pause, stop. Control parameters can be changed during simulation. It is also possible to dynamically change time scope of the diagrams from 2 to 16 years.

User can change the following control parameters of the model:

  • Tax Level (can be applied for all branches or one selected branch) – tax share in total output of the firm (i.e. sales tax)
  • Share of transfers in G – share of taxes that is used for transers to households, remaining taxes go to foreign currency market
  • Foreign currency price – some absolute value of exchange rate or  shift from the equilibrium level (initial value =1)
  • Wages level – some absolute value of labour force price or shift from the equilibrium level (initial value =1)
  • Monetary Base – increase in monetary base = emission = increase of state revenues

Two upper diagrams allow to observe  two of the following parameters, each for 5 main resources (3 resources + labour force + foreign currency):

  • Prices Market (index) – price index for each resource
  • Turnover (index) – turnover (demand+supply)  for each resource
  • Market Balance (%) – (supply-demand) / (supply+demand)  for each resource
  • Basic Funds (index) – value of basic funds for each branch

Each of the two lower diagrams displays changes in up to three aggregated parameters, chosen by user from:

  • Real GDP (index)
  • Nominal GDP (index)
  • GDP Deflator
  • Real Private Consumption (index)
  • Import (index)
  • Export (index)
  • Net Export (index)
  • Real Investment (index)
  • Nominal Tax Revenue (index)
  • Nominal Transfers (index)
  • Monetary Base (Index)

Download and start-up notes

Follow these steps to run simulation:

  1. Download MSMNE-02 model as MS Excel file (~500Kb). Or download zip archive (~150Kb)  and unpack it.
  2. Open MSMNE-02_v100.xls. Note that macros should be enabled to start simulation.
  3. Use buttons “start”, “pause”, “stop” to control simulation process.
  4. Change control parameter by selecting parameter (e.g.”Tax Level”), its value (e.g. “=Initial Value +10%”) and by pressing “set” button.
  5. Chose the diagram contents by selecting from the indicator lists near the diagrams.

Contact information

The model is still under development. If you are interested in updates or you have suggestions, comments, questions I would be glad to hear from you. Please contact me by mail msmne@dankozub.com or via ICQ (DanKozub:99815266).

References

  • Basu N. and Pryor R. J. Growing a Market Economy //SAND-97-2093, Sandia National Laboratories, Albuquerque, 1997

  • Basu N., Pryor R.J., Quint T., and Arnold T. Aspen: À Ìicrosimulation Model of the Economy //SANDIA REPORT, SAND96-2459, Sandia National Laboratories ,Albuquerque, 1996

  • Bergmann, B. A Micro Simulation of the Macro Economy with explicitly represented Money Flows //Annals of Social and Economic measurement (July) 1974.

  • Bernard P. Object Oriented Simulation With Hierarchical Modular Models: Intelligent Agents and Endomorphic Systems.-Zeigler,1990.

  • Bruckmann, G., Fleissner, P. Ein oekonomish-kybernetisches  modell fuer Oesterreich.- Wien, New York, Springer, 1989, s.1-2.

  • Carlsson, B. The Measurement of Efficiency in Production: An Application to Swedish Manufacturing Industries, 1968 //The Swedish Journal of Economics, 1972:4.

  • Eliasson G., Heiman M. and Olavi G., Technical Specifications for Swedish Micro Based Macro Model //in Eliasson.G. (ed) , A Micro-to-Macro Model of the Swedish Economy. IUI Stockholm, 1978.

  • Eliasson, G. A., Micro-Macro interactive Simulation Model of the Swedish Economy, IUI //Working paper No 6, (Dee), 1976.

  • Eliasson, G. Business Economic Planning – Theory, practice and comparision.-(Wiley, London etc), 1976.

  • Eliasson, G. Competition and Market Processes in a Simulation Model of the Swedish Economy //American Economic Review, Vol. 67, No. I, (Feb) 1977.

  • Eliasson, G. Exchange Rate Experiments on a Micro Based Simulation Model //Idustrikonjunkturen, Spring 1977.

  • Eliasson, G. Profits and Wage Determination //Economic Research Report No. II,  Federation of Swedish Industries, Stockholm, 1974.

  • Eliasson, G. The Credit Market, Investment Planning and Monetary Policy (IUI).-Uppsala, 1972.

  • Kuboniwa, M., Quantative economics of socialism //Economic Research Series No. 27, Kinokunja Company Ltd, Oxford University Press, 1989, p.176, 177, 181.

  • Microanalysis of Socio-Economic Systems: A Simulation Study /Orcutt, G, M. Greenberger, J. Korbel, and A. Riviln.- Harper & Row, New York, 1961.

  • Orcutt, G. A New Type of Socio-Economic System //Review of Economics and Statistics, May 1957, vol. 58, p. 773-97.

  • Orcutt, G. Simulation of Economic Systems //American Economic Review, vol. L, December I960.

  • Policy Exploration Through Microanalytic Simulation /Orcutt, G., Caldwell, S.B., R. Wertheimer II, et al.-Washington, D.C., Urban Institute, 1976.

  • Pryor R. J., Basu N., and Quint T. Development of Aspen: A Microanalytic Simulation Model of the U.S. Economy // Sandia National Laboratories ,Albuquerque, NM 87185, SAND96-0434, 1996

  • Shubik, M. Simulation of the Industry and the Firm //American Economic Review, vol. L, December 1960.

  • Uebe, G., World of Economic Models: Catalog of Typical Specifications and Economic Models.-Avebury, England, 1995, 475p.

  • Wallis J., North D. Measuring the Transactional Sector in American Economy, 1870-1970// Long-term factors in American Economic Growth. Vol. 51 of The Income and wealth Series/ Ed. by S.Engernam and R. Gallman. Chicago: University of Chicago Press, 1986.

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