Primary Subject Area
economics, simulation, paradigm, agent-based
Heathcote, Ryan M., "Simulating Inflation" (2013). Senior Honors Theses. 389.
Inflation is a common problem in modern economics, and it seems to persist, requiring government financial policy intervention on a regular basis in order to properly manage. The mechanics of inflation are difficult to understand, since the best metric modern society has for inflation involves taking samples of prices across the country. A simulation can give deeper insight into more than the mere fact that prices rise over time: a simulation can help to answer the “why” question. The problem with this statement is that developing a simulation is not as simple as writing some code. A simulation is developed according to a paradigm, and paradigms are not created equal. Research reveals that traditional paradigms that impose order from the outside do not mimic reality and thus do not give a good degree of accuracy. By contrast, Agent Based Modelling models reality very closely and is consequently able to simulate economic systems much more accurately.