Incorporating Damped Harmonic Oscillator in DSGE Models

TL;DR

This paper enhances DSGE models by integrating a damped harmonic oscillator to better simulate delayed economic adjustments, recovery dynamics, and stability, providing more realistic macroeconomic forecasts.

Contribution

It introduces a damping coefficient into DSGE models, allowing for modeling of under-damped, critically damped, and over-damped recovery processes, which was not previously standard.

Findings

Different damping levels significantly affect recovery speed.

The model improves realism in simulating economic crises.

Numerical simulations demonstrate stability and recovery dynamics.

Abstract

This paper integrates the damped harmonic oscillator into DSGE models to better capture delayed economic adjustments. By introducing a damping coefficient, I model economic recoveries as under-damped, critically damped, or over-damped processes. Numerical simulations illustrate how different damping levels affect recovery speed and stability. This approach enhances DSGE models' realism, offering insights into historical economic crises and improving macroeconomic forecasting.