Penn Wharton Budget Model: Macroeconomics in MATLAB

The Penn Wharton Budget Model (PWBM) is an integrated model of the U.S. economy. It consists of multiple components: a demographics microsimulation, tax modules, Social Security and other government programs, and a dynamic macro-economy model. The dynamic model computes optimal decisions by heterogeneous, rational, forward-looking agents and finds the aggregate effect on prices such that agents’ actions and prices are in equilibrium. These types of models are computationally intensive and are the workhorse models used by modern computational macro-economists. PWBM uses the dynamic model, built in MATLAB^®, to project the effect of policy changes on U.S. household behavior and the consequences for macro-economic variables such as GDP, interest rates, debt, and capital formation.