Finite state machine modelling of the macro-economy

Abstract

In this paper we model macro-economic policies with a Finite State Machine (FSM). The FSM is made of several states and transitions between states, in which a state is modelled by a set of conditions. The allowed transitions between states must be also be defined, in order to complete the model. In this paper we analyze how to use a FSM in order to model macroeconomic decision, where each state represents a set of economic decisions. Together with some pre-defined initial conditions, these adapted FSM models are analyzed in order for us to study what sequence of decisions yield the best results for pre-determined end-goals, based on the FSM’s possibilities. The final model shows what policies must be followed, and by what order, in order to maximize results, yielding some interesting conclusions.