Simulation for the economy bubble

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ymajesty
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Simulation for the economy bubble

Postby ymajesty » Wed Jan 30, 2008 9:22 am

Don't know if it is possible to implement this kind of modding, what's your view?

If the GDP has been growing at high rate for a certain period of time, the economy will get overheat and bubble will get bursted someday.
scylfing
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Re: Simulation for the economy bubble

Postby scylfing » Mon May 12, 2008 6:41 am

I believe there's already a business cycle representation in the simulation code, but you'll need someone more knowledgeable than me to say for certain.

I can at least draw more attention to this post in the hopes of drawing it back to the attention of those who might answer it. I am curious myself.
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TomPhil
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Re: Simulation for the economy bubble

Postby TomPhil » Mon May 12, 2008 11:24 am

I'm not sure that you could do it based on how long the GDP had been growing for, but you could easily do it based on how high the GDP was. There is already a market meltdown event which basically does what is described above.
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jeffryfisher
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Re: Simulation for the economy bubble

Postby jeffryfisher » Sun Nov 18, 2012 7:35 pm

Economic bubbles are monetary events caused by loose money inflating the prices in some asset class, whatever is considered "safe" in some time and place. Real estate was all the rage in the 1860's, stocks in the 1920's, real estate again in the 2000's. Correction of manic asset valuations becomes as certain as an earthquake in a fault zone, but the timing is just as tricky to predict.

The European real estate boom of the mid 19th C was burst after the Franco-Prussian War: After the Prussians took France's gold, they (the Prussians) decided that they didn't need silver anymore, so they dumped it. Banks became illiquid as their reserves shrank, and the real estate boom collapsed.

"Real" GDP growth stems from productivity gains, and productivity gains stem from various forms of capital formation (both physical and intellectual). As long as the game's "GDP" simulation represents real goods and services (rather than inflated prices), it isn't a signal for a bubble (unlike the real-world GDP stat, which is a product of both what was made and the inflated prices used to measure what was made).

I am not sure that the game has a complete monetary model. Yes, your government can spend money it doesn't have, but I have not yet seen where the money comes from. Is it fiat "legal tender" being created on a whim? Is "hard" (commodity-backed) money being borrowed from a finite supply, resulting in scarcity elsewhere?

To properly model a bubble, you might add a monetary policy and make it uncancellable. Hide the "real" GDP now in the game, then add an apparent GDP that shows a player only an inflated view of real GDP (GDP + inflation from loose money). Some probable events (like euphoria in the stock market) could sound like good news but really signal a bubble forming. An improbable event could burst the bubble. With its value reduced to zero, the apparent GDP would briefly reveal the real GDP.

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