The objective of the paper is to show that the one of the main source of macroeconomic investment instability is similar to that which makes difficult managing supply line in famous Beer Game developed by the system dynamics group of MIT Sloan School of Management. It will be pointed out that ignoring production time delays causes instability not because economic agents simply ignore supply line delays, but because they adjust their expectations more rapidly than the delays involved in supply lines, whatever those delays could be. The paper is structured in three sections. In the first we present the classic Phillips’ argument about unintentional destabilizing effects of stabilization policy in modern dynamic system language, in order to show how to build a simplified macroeconomic supply line model for investment dynamics; in the second section, the macroeconomic model is developed and simulated. Third section concludes the paper suggesting that the inclusion of production time delays in macroeconomic models reopens the space to the control theory in stabilization policy debate

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Date created

• 2005 July 17-2005 July 21

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• Document

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• Creative Commons BY-NC-ND Attribution-NonCommercial-NoDerivs 4.0 International

  
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cc5bb0ac12a5b68b26b1583548898dae

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System Dynamic Society Records

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• This collection is part of the University Archives