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Title: Market disruption, cascading effects, and economic recovery:a life-cycle hypothesis model.

Abstract

This paper builds upon previous work [Sprigg and Ehlen, 2004] by introducing a bond market into a model of production and employment. The previous paper described an economy in which households choose whether to enter the labor and product markets based on wages and prices. Firms experiment with prices and employment levels to maximize their profits. We developed agent-based simulations using Aspen, a powerful economic modeling tool developed at Sandia, to demonstrate that multiple-firm economies converge toward the competitive equilibria typified by lower prices and higher output and employment, but also suffer from market noise stemming from consumer churn. In this paper we introduce a bond market as a mechanism for household savings. We simulate an economy of continuous overlapping generations in which each household grows older in the course of the simulation and continually revises its target level of savings according to a life-cycle hypothesis. Households can seek employment, earn income, purchase goods, and contribute to savings until they reach the mandatory retirement age; upon retirement households must draw from savings in order to purchase goods. This paper demonstrates the simultaneous convergence of product, labor, and savings markets to their calculated equilibria, and simulates how a disruption to amore » productive sector will create cascading effects in all markets. Subsequent work will use similar models to simulate how disruptions, such as terrorist attacks, would interplay with consumer confidence to affect financial markets and the broader economy.« less

Authors:
Publication Date:
Research Org.:
Sandia National Laboratories
Sponsoring Org.:
USDOE
OSTI Identifier:
903421
Report Number(s):
SAND2004-5972
TRN: US200722%%46
DOE Contract Number:  
AC04-94AL85000
Resource Type:
Technical Report
Country of Publication:
United States
Language:
English
Subject:
29 ENERGY PLANNING, POLICY AND ECONOMY; ECONOMICS; EMPLOYMENT; HOUSEHOLDS; INCOME; LIFE CYCLE; MARKET; PRICES; PROFITS; WAGES; MATHEMATICAL MODELS; Employment forecasting; United States.; Economics-Mathematical models.; Data modeling.; Economics-Sociological aspects

Citation Formats

Sprigg, James A. Market disruption, cascading effects, and economic recovery:a life-cycle hypothesis model.. United States: N. p., 2004. Web. doi:10.2172/903421.
Sprigg, James A. Market disruption, cascading effects, and economic recovery:a life-cycle hypothesis model.. United States. doi:10.2172/903421.
Sprigg, James A. Mon . "Market disruption, cascading effects, and economic recovery:a life-cycle hypothesis model.". United States. doi:10.2172/903421. https://www.osti.gov/servlets/purl/903421.
@article{osti_903421,
title = {Market disruption, cascading effects, and economic recovery:a life-cycle hypothesis model.},
author = {Sprigg, James A.},
abstractNote = {This paper builds upon previous work [Sprigg and Ehlen, 2004] by introducing a bond market into a model of production and employment. The previous paper described an economy in which households choose whether to enter the labor and product markets based on wages and prices. Firms experiment with prices and employment levels to maximize their profits. We developed agent-based simulations using Aspen, a powerful economic modeling tool developed at Sandia, to demonstrate that multiple-firm economies converge toward the competitive equilibria typified by lower prices and higher output and employment, but also suffer from market noise stemming from consumer churn. In this paper we introduce a bond market as a mechanism for household savings. We simulate an economy of continuous overlapping generations in which each household grows older in the course of the simulation and continually revises its target level of savings according to a life-cycle hypothesis. Households can seek employment, earn income, purchase goods, and contribute to savings until they reach the mandatory retirement age; upon retirement households must draw from savings in order to purchase goods. This paper demonstrates the simultaneous convergence of product, labor, and savings markets to their calculated equilibria, and simulates how a disruption to a productive sector will create cascading effects in all markets. Subsequent work will use similar models to simulate how disruptions, such as terrorist attacks, would interplay with consumer confidence to affect financial markets and the broader economy.},
doi = {10.2172/903421},
journal = {},
number = ,
volume = ,
place = {United States},
year = {Mon Nov 01 00:00:00 EST 2004},
month = {Mon Nov 01 00:00:00 EST 2004}
}

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