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Thermodynamic structure of a macroeconomic model

Author

Listed:
  • Takuma Tanaka

    (Faculty of Data Science, Shiga University)

Abstract

This paper reports a novel mathematical structure of economic models with rational agents. Taking a cash-in-advance (CIA) model as an example, I show that macroscopic conservation and irreversibility laws, which are similar to those in thermodynamics, hold for the model. These properties allow for defining internal energy, Helmholtz free energy, entropy, and temperature. Thermodynamic relations among these quantities are also proven for the model. Possible extensions to and implications for macroeconomic models are discussed.

Suggested Citation

  • Takuma Tanaka, 2018. "Thermodynamic structure of a macroeconomic model," Discussion Papers CRR Discussion Paper Series A: General 30, Shiga University, Faculty of Economics,Center for Risk Research.
    • Handle: RePEc:shg:dpapea:30
    as

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    File URL: https://www.econ.shiga-u.ac.jp/risk/DPA30Tanaka20180510.pdf
    File Function: First version, 2018
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    References listed on IDEAS

    as
    1. Negro, Marco Del & Schorfheide, Frank, 2013. "DSGE Model-Based Forecasting," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 57-140, Elsevier.
    2. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
    3. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    4. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-220, April.
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    More about this item

    Keywords

    CIA model; land; thermodynamics; irreversibility;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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    This paper has been announced in the following NEP Reports:

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