Theoretical Models

Please find below relevant links to websites and software useful for the theoretical analysis of macroeconomic and financial dynamics  Therefore, the emphasis is on “picturing”, not necessarily “algebrising” the economy. To this effect I begin by showing the typical AD-AS model of the economy, that all economics graduates will have seen, but most will have forgotten. Next the emphasis is on solving DSGE models . This can be done for free through the use of Dynare in Octave. In the spirit of analytical democratisation, I am interested in the use of free, open source, tools. For those with the resources, the choice is available to solve DSGE models through the use of Dynare in Matlab.

AD-AS INTERACTIONS – Not exrtemely formal but interactive

As Krugman continues to say, every economist ought to have an AD-AS (IS-LM & LD-LS) model in the back of his head. I agree. To this end, I would like to direct you to White Nova‘s Think Economics website. There you can find a simple such model to play around with through a series of interactive graphs about:

• Changes in Supply, Demand and Market Equilibrium
• A Firm’s Long Run Average Cost Curve
• Profit Maximization for a Competitive Firm
• The Aggregate Demand and Aggregate Supply Model
• Macroeconomic Phenomena in the AD/AS Model
• Economic Policy (Fiscal and Monetary Policy) Tools

On a more sophisticated and diverse note, you can also find this type of interactive modelling provided by Manfred Gärtner at Eurmacro. It provides a “road map” of macroeconomic topics as well as a tutorial of an extremely rich range of different interactive macro and political economy models. You need to have your Java Plugins up to date to use the applet. Finally, the Economics Web Institute also has some stand alone software which you might find useful.

MACROECONOMIC SIMULATORS

General Software

• Matlab (not for free) and Octave (for free) are two mathematic programmes that can be used as a platform for conducting any mathematical tasks. In that sense they can both be used for both theoretical and empirical analysis. However, on account of the large range of pre-packaged, user friendly, empirical software the emphasis is generally on the derivation of theoretical models. Please refer to this document for guidance on how to install and run Octave  with a user friendly Graphical User Interface.

Macroeconomic Modelling Packages for Matlab (and Octave)

• Sims Code for Solving Solving Linear Rational Expectations Models – Matlab, Octave R
• Uribe‘s Matlab Code for First-Order and Second-Order Accurate Solutions to DSGE Models
• Dynare (used by the European Commission) is the typical tool used for the derivation of Macroeconomic models. It can be applied to Matlab as well as to Octave. Once it is installed (in the manners described here), it is possible to run several economic models provided by a variety of sources:

• The Macroeconomic Model Database is an independent organisation of economists which compiles and distributes an extremely wide range of macroeconomic models from different economists and economic institutes in Matlab format. They encompass several countries and several economic assumptions. The database of over 50 models is described here and used in this article.  Register and Login for free to download here.
  • European Commission – Euro-area Economy Modelling Centre:  The QUEST III Model (Download), as described in  “QUEST III: An estimated open-economy DSGE model of the Euro area with fiscal and monetary policy” Marco Ratto, Werner Roeger, Jan in ‘t Veld, European Commission, Economic Papers 335, July 2008

• YADA is a programme used by the ECB. It is similar to Dynare, except that I have found no reference to it working on Octave.  It can be downloaded here.

• Uhlig’s Toolkit, provides another such simulating opportunity through the  Macroeconomic Application Software. It can be download here ( it is only compatible with Matlab).

Stand Alone Theoretical Software

The European Commission economic research divisions have several resources of their own, on top of the models covered above. In parallel, professor Harald Uhilg, seems to be an economic open source entrepreneur, with a thought for user friendly tools. Uhlig’s Toolkit, asides from the  Macroeconomic Application Software, also provides a range of stand alone programmes which rather simply are only 1 model relevant, but are extremely easy to install and use. These are the models provided on a stand alonge platform that I could find. I’m sure many more exist:

• European Commission: MACMIC (Database of simulations/estimates of the macroeconomic impact of microeconomic reforms)
• European Commission: Joint Research Centre – Institute for Prospective Technological Studies –  IA Tools:
  • Computable General Equilibrium
  • Macro-econometric models
  • Sectoral models
  • Microsimulation models
  • Environmental impact assessment models

• European Commission: Euro-area Economic Modeling Center – Software:
  • BUSY
  • FLASH
  • GLUEWIN
  • SS-ANOVA-R

From Professor Uhlig’s website (notes here):

• Smets and Woulters (2003) Model –
• Hansen (1985) Model – From Professor Uhlig’s website
• Dynamo – Hansen and Finance Minister

For More Information …

… Professor Uhlig kindly offers these links as a map to guide you in these endeavours. I hope it helps!

Agent Based Models (ABM) – Comparison of Available Software

NetLogo – Download

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BANKING & FINANCIAL MODELS

This is still a very early exercise, as I am no expert in finance. My understanding is that most of the quantitative efforts are conducting using the tools described above. However, whatever interesting tools I come across, I’ll post here:

1) Flow Network Simulator by Amadeo Alentorn – Project with the Financial Stability Group at the Bank of England to study how systemic risk is affected by the structure of the financial system, using simulations based on random graphs. (Download)

Sources:

• Nier, Erlend; Yang, Jing; Yorulmazer, Tanju; Alentorn, Amadeo, 2007. “Network models and financial stability,” Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 2033-2060, June
• Watts, D. J. and S. H. Strogatz. 1998. Collective dynamics of ‘small-world’ networks. Nature 393:440-42.
• Newman, M.E.J. 2003 . The Structure and Function of Complex Networks. SIAM Review 45(2):167-256

2)  Stock Price Probability with Stable Distributions Demonstration – This Demonstration calculates the probability that the random price of an exchange-traded fund will be higher or lower after one month than a particular future possibility. For further information, check:

• Financial Section Overview of math estate, for a guide of the topic
• Robust Analysis, for software

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GENERAL TOOLS

P & P Freemap – This tool allows you to take a predetermined geographical location and configure it as you wish to display the specific regional differences of a preferred variable. (free trial version)

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Codes by Authors

• Wouter Den Haan – Professor of economics at the LSE (see also his data and lecture notes) (Matlab programs and Appendix for “Non-linear and stable perturbation-based approximations“)
• Christopher Sims – Nobel Laureate in Economics; John F. Sherrerd ’52 University Professor of Economics at Princeton University
• Tao Zha – Director of the Center for Quantitative Economic Research in the research department of the Federal Reserve Bank of Atlanta
• Gary Koop – Professor in the Department of Economics, University of Strathclyde – MATLAB Code for Bayesian VARs, TVP-VARs and TVP-FAVARs

• Ambrogio Cesa Bianchi – Economist at the Bank of England
• Lawrence Christiano – d W. Chase Chair in Business Institutions, Northwestern University
• Romain Wacziarg – Associate Professor of Economics at UCLA Anderson School of Management
• Robert Shiller – Arthur M. Okun Professor of Economics Yale University
• John Cochrane – Data and Programs
• Martin Uribe – Professor of Economics at Columbia University
• Christoph Trebesch – Assistant Professor, University of Munich (data for sovereign defaults and restructuring)
• Pippa Norris – McGuire Lecturer in Comparative Politics,  at the John F. Kennedy School of Government, Harvard University
• Thomas Plümper – Professor of Government, University of Essex
• Christian W. Martin – Visiting Assistant Professor, Department of Political Science, Northwestern University