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The use of simulation techniques in dynamic input-output modeling

Department of Agricultural Economics Virginia Polytechnic Institute and State University Blacksburg, Virginia 24061

This paper describes a combined continuous-discrete simula tion model of an economy. The simulation model "solves" a dynamic input-output model (a system of differential equations) by numerically tracing the level of state variables through time. An analytic solution to this system, while possible, is imprac tical because of discontinuities in the state equations due to in dustry capacity constraints and irreversibilities in investment levels. The model is fitted with data for the Grant County Oregon economy and used to measure the dynamic impacts of an in crease in allowable timber harvest in the county. This study dem onstrates the advantages of the dynamic model over its static counterpart and explores its potential application to various economic impact problems.

Key Words: combined simulation • dynamic models, economic systems • numerical methods • policy making

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