Economic Modelling - lecture notes

• Type: Educational Publication
• Date: 2023

Authors

Sofia B.S.D. Castro (Author) FEP

Other information

Abstract (EN): The following text supports the more technical aspects of the course on Economic Modelling of the MSc in Economics of FEP.UP. In particular, it introduces the theory of dynamical systems which is essential for the study of the models used to partially describe one or more aspects of the economy. This text is not intended to replace neither the recommended bibliography nor the classes. A dynamical system, in the context of this course, is a description of one or more state variables and their variation in time. When we assume that time is described by a continuum, the information concerning the states of each variable is given by a differential equation (or a system of differential equations). If we assume that time is discrete then the states of each variable are described by a difference equation. This latter case occurs when the state variables are available only at discrete moments in time, either because they are only observed at these moments or because it is too costly to extract information continuously. Whether the dynamical system is given by a differential or a difference equation, we are mostly interested in the qualitative description of the solutions. The advanced state of computational tools does not justify that a lot of time be given to the resolution of dynamical systems. Hence, after learning how to solve a very limited number of dynamical systems, we learn how to qualitatively describe the state variables and their evolution in time. Such a qualitative study is recommended to assess the desirable properties of the behaviour of the state variables before computational/numerical tools are used for a more quantitative description. Since models in economics are typically dependent upon exogenous parameters, we pay attention to the robustness of the models, via that of the dynamical systems, when such parameters change. This leads to a brief encounter with bifurcations. This text is not in its final version (it probably never will be) and comments/corrections are most welcome.

Language: English

Type (Professor's evaluation): Educational