Towards a Dynamic Equilibrium-Seeking Model of a Closed Economy

Abstract

Economics has long been concerned with the development of tools to help understand and describe the interactions among economic actors including the circular flow of economic resources. This paper expands our available toolkit of models, by describing a novel dynamic equilibrium-seeking model of a closed economy. The model retains many of the key features of state-of-the-art Computable General Equilibrium (CGE) models including economic interdependence, input substitution, nested production functions, and so on. A distinguishing feature of this model is that it adopts price-related balancing feedback loops that simulate the self-regulating behaviour of a dynamic economic system. Our modelling shows not only equilibrium states (as per conventional CGE models), but the transition path toward an often-changing equilibrium. This facilitates the investigation of out-of-equilibrium dynamics and behaviour adaptation typical of largescale disruption events.