The Transition from Brownian Motion to Boom-and-Bust Dynamics in Financial and Economic Systems
AbstractQuasi-equilibrium models for aggregate variables are widely-used throughout finance and economics. The validity of such models depends crucially upon assuming that the systems' participants behave both independently and in a Markovian fashion. We present a simplified market model to demonstrate that herding effects between agents can cause a transition to boom-and-bust dynamics at realistic parameter values. The model can also be viewed as a novel stochastic particle system with switching and reinjection.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1209.4629.
Date of creation: Sep 2012
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-30 (All new papers)
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