In this notebook, we explore the use of ordinary differential equations (ODE) in Python to simulate the dynamics behind the IS-LM macroeconomic model. The IS-LM model model is a Keynesian macroeconomic model that illustrates how the goods and the money market interact with each other to find the equilibrium between the interest rates and the total economic output in the macroeconomy. This notebook explores three different numerical methods to solve systems of ODE: the Forward Euler, RungeKutta4, and scipy's odeint function. Likewise, the notebook attempts to simulate the effect of monetary and fiscal policy to domestic output and interest rates.
Code credits to Prof. Alva Presbitero of the Asian Institute of Management for the implementation of the Forward Euler and the RungeKutta4 methods.