Feedback dynamic control for exiting a debt-induced spiral in a deterministic Keen model.

Area of Science:

• Economics
• Mathematical Modeling
• Control Theory

Background:

• The Keen model simulates economies as dynamic systems with private debt, wage share, and employment rate interactions.
• Certain conditions in the Keen model can trigger a debt spiral, mirroring real-world financial crises.

Purpose of the Study:

• To develop a policy intervention strategy for breaking debt spirals within the Keen economic model.
• To express the Keen model as a controllable affine nonlinear system.

Main Methods:

• Representing the Keen model as an affine nonlinear system.
• Identifying critical initial conditions simulating a financial crisis.
• Locating a stable equilibrium point within the system's vector field.
• Designing a control path using one-step-ahead optimal control.

Main Results:

• Demonstrated a method to modify the Keen model through policy interventions.
• Successfully simulated control scenarios to guide the system towards a desirable equilibrium.
• Provided a framework for managing economic downturns and debt spirals.

Conclusions:

• The proposed approach offers a viable strategy for economic stabilization.
• Policy interventions can effectively mitigate the impact of financial crises modeled by the Keen system.
• This research contributes to understanding and managing complex economic dynamics.