Springer Optimization and Its Applications 101 Ivan V. Sergienko Mikhail Mikhalevich Ludmilla Koshlai Optimization Models in a Transition Economy Springer Optimization and Its Applications VOLUME 101 Managing Editor Panos M. Pardalos (University of Florida) Editor–Combinatorial Optimization Ding-Zhu Du (University of Texas at Dallas) Advisory Board J. Birge (University of Chicago) C.A. Floudas (Princeton University) F. Giannessi (University of Pisa) H.D. Sherali (Virginia Polytechnic and State University) T. Terlaky (McMaster University) Y. Ye (Stanford University) Aims and Scope Optimization has been expanding in all directions at an astonishing rate during the last few decades. New algorithmic and theoretical techniques have been developed, the diffusion into other disciplines has proceeded at a rapid pace, and our knowledge of all aspects of the field has grown even more profound. At the same time, one of the most striking trends in optimization is the constantly increasing emphasis on the interdisciplinary nature of the field. Optimization has been a basic tool in all areas of applied mathematics, engineering, medicine, economics, and other sciences. The series Springer Optimization and Its Applications publishes under- graduate and graduate textbooks, monographs and state-of-the-art exposi- tory work that focus on algorithms for solving optimization problems and also study applications involving such problems. Some of the topics covered include nonlinear optimization (convex and nonconvex), network flow problems, stochastic optimization, optimal control, discrete optimization, multi-objective programming, description of software packages, approxima- tion techniques and heuristic approaches. More information about this series at http://www.springer.com/series/7393 Ivan V. Sergienko • Mikhail Mikhalevich Ludmilla Koshlai Optimization Models in a Transition Economy 123 Ivan V. Sergienko Mikhail Mikhalevich Ludmilla Koshlai V.M. Glushkov Institute of Cybernetics National Academy of Sciences of Ukraine Kiev, Ukraine ISSN 1931-6828 ISSN 1931-6836 (electronic) ISBN 978-1-4899-7543-0 ISBN 978-1-4899-7544-7 (eBook) DOI 10.1007/978-1-4899-7544-7 Springer New York Heidelberg Dordrecht London Library of Congress Control Number: 2014953314 © Springer Science+Business Media New York 2014 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. 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While the advice and information in this book are believed to be true and accurate at the date of publication, neither the authors nor the editors nor the publisher can accept any legal responsibility for any errors or omissions that may be made. The publisher makes no warranty, express or implied, with respect to the material contained herein. Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com) Preface Every day before leaving the comfort of our home we wonder what the weather is like. The weather forecast helps people feel more comfortable and prepared when heading outside. Numerous media sources report a wide range of weather characteristics such as precipitation, wind strength, direction, speed, temperature, humidity, atmospheric pressure, cloudiness, visibility, atmospheric phenomena that include fog, blizzards, storms, and other meteorological occurrences. The weather undergoes continuous changes that can be very noticeable from one day to the next and sometimes even from one minute to the next. Depending on the forecast a person chooses protective clothing and items such as raincoats, umbrellas, and glasses. For transportation on land, water, and in the air meteorological factors such as precipitation, ice, wind strength, and direction are crucial. In aviation for instance, it would be important to note a sharp increase in wind and turbulence. The weather has always existed, and modern man still has almost no control over the weather. Unlike the weather, economy was created by man. The word “economy” itself was introduced by a great scholar of ancient times, Aristotle. It was formed by combining two words: “oikos”—“household” and “nomos,” from “nemein”—“management.” Modern scholars have given the following interpreta- tion of this concept: the economy is a life support system that is consciously built and utilized by people in all spheres of human activities. Many people take part in daily economic activities, live in a shared economic environment and sometimes use economic terms such as “money,” “prices,” “infla- tion,” “wages,” “taxes,” “income,” “costs,” “volumes of production,” “exchange rate,” “unemployment,” or “the market.” Economic information reveals the pros and cons of different economic systems and public choice options, the difficult choice between equality and efficiency, electoral process, activities of firms and industrial organization, marketing and man- agement, labor market, capital and money markets, family economics, consumer behavior, and national and global economy. v vi Preface The fall of the Berlin Wall, the collapse of the communist empire in Eastern Europe in the early 1990s led to significant changes in the economies of the newly formed countries. It also created new interactions and greater influence between the “open market” and the “transition” economies. This book is written on the basis of the experience of the authors and their colleagues in mathematical modeling of many transition economies’ characteristics. The main conclusion reached by this book’s authors is that the concept of a transition economy opened many avenues for further studies of both open and transition economies. Mathematical modeling of weather phenomena merely allows us to forecast certain essential weather parameters without any possibility of changing them. In contrast, modeling of transition economies gives us the freedom to not only predict changes in important indexes of all economy types but also influence them more effectively in the desired direction. In other words, any economy including a transitional one can be controlled by humans. This book is useful to anyone who wants to increase profits within their business and improve the quality of their family life and the economic area they live in. Professional economists will greatly benefit from new interdependencies between the well-known micro- and macroeconomic parameter behaviors. Moreover, they will appreciate the new possibilities in steering and changing both transitional and open market economies. Mathematicians will be introduced to new mathematical models as well as efficient methods of finding either feasible or optimal solutions for those models. Employees of state planning and statistical organizations will be able to use the proposed models and solutions for improving existing information technologies and operational abilities of their departments. This book is also beneficial for undergraduate and graduate students specializing in the fields of Economic Informatics, Economic Cybernetics, Applied Mathematics, and Large Information Systems. The roots of this book arose from pioneering publications, many organizational efforts, and the critical view of our colleague and former director of Glushkov Insti- tute of Cybernetics, Vladimir S. Mikhalevich. Many of our colleagues worldwide have read, discussed, and commented on some of the book’s ideas as well as the book in its entirety. We express our deepest gratitude to Yu.M. Ermol’ev and N.Z. Shor for laying the foundation that allowed the final version of this book to be fully realized. The financial support from the Glushkov Institute of Cybernetics, National Academy of Sciences of Ukraine is greatly appreciated. Kiev, Ukraine Ivan Sergienko May 2014 Contents 1 Financial Stabilization Models ............................................. 1 1.1 Financial Stabilization: The Prime Goal of Market Reforms ......... 1 1.2 Two Macromodels Under Inflation Conditions ........................ 6 1.3 Modeling of Costs Inflation ............................................ 20 1.4 Modeling of Inflationary Expectations ................................. 45 References ..................................................................... 68 2 Modeling of Structural, Institutional and Technological Changes ..... 71 2.1 Main Directions of the Structural Reforms