Applying System Dynamics Model for Macroeconomic Analysis of Yemen
Econometrics, Mathematical Methods and Programming Journal, Vol. 4, No. 38, May 19, 2011
55 Pages Posted: 6 May 2011 Last revised: 26 Jul 2011
Date Written: April 29, 2011
The purpose of the System Dynamics method is to study the relationship between structure and behavior in non-linear, dynamic systems. In such systems, the significance of various structural components to the behavior pattern exhibited, changes as the behavior unfolds. Changes in structural significance modify that behavior pattern which, in turn, feeds back to change the relative significance of structural components. We develop a macroeconomic model through which we can study the characteristics of the feedback between structure and behavior. This model is based on multiplier-accelerator model, and inventory – adjustment model. This work is an extension of the work by Nathan Forrester on the use of basic macroeconomic theory to stabilize policy analysis. The design of a System Dynamics model begins with a problem and a time frame that contribute to the problem. They are listed and their structural relationships sketched the factors with particular attention to characterizing them as levels (or stocks) and rates (or flows) that feed or drain them. Levels and rates must alternate in the model; no level can control another without an intervening rate or any rate influence another without an intervening level.
Keywords: Macroeconomic Analysis, System Dynamics, Yemen, Monetary Supply, Economic Models
JEL Classification: C80, C81, C82, D72, E1, E11, P1, P10, P11
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