A compact macroeconomic simulation of a negative supply shock caused by a hypothetical closure of the Strait of Hormuz.
The project uses a three-equation New Keynesian framework to trace the effect on inflation, the output gap and the real policy rate. It is an analytical illustration rather than a forecasting model.
| Block | Equation | Role |
|---|---|---|
| Phillips curve | pi_t = pi_(t-1) + gamma * y_t + epsilon_t |
Inflation dynamics |
| IS curve | y_t = -alpha * (r_t - r*) |
Output gap response |
| Taylor rule | r_t = r* + phi_pi * (pi_t - pi*) + phi_y * y_t |
Policy-rate reaction |
The script generates a two-panel chart:
- Monetary-policy rule: the interest-rate response to inflation and activity.
- Aggregate supply and demand: the path from the initial equilibrium through the shock and subsequent convergence.
| Parameter | Value | Description |
|---|---|---|
pi* |
2.0% | Inflation target |
r* |
1.0% | Natural real interest rate |
phi_pi |
1.5 | Taylor-rule coefficient on inflation |
phi_y |
0.5 | Taylor-rule coefficient on the output gap |
gamma |
0.4 | Phillips-curve slope |
epsilon |
3.0 pp | Supply-shock magnitude |
python -m venv .venv
source .venv/bin/activate
pip install -r requirements.txt
python hormuz_oa_da_model.pyThe chart is written to hormuz_oa_da_taylor.png in the project directory.
The shock is exogenous and temporary, expectations are backward-looking, and the response coefficients are calibrated rather than estimated. Those choices keep the mechanics transparent, but they also mean the output should be read as comparative dynamics rather than a real-world forecast.
MIT