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A Fundamental Cause of Economic Crisis―A Macro-economic Game between the Real Economic Sector and Monetary Sector

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  • Koji Akimoto

Abstract

This study examines a fundamental cause of the economic crisis from which the current capitalist economy is suffering. We posit that the cause is an imbalance between the real economic sector and the monetary sector. To test this hypothesis, we construct a differential game. Players are the agents selected by the two sectors. We adopt linear objective functions, because if we adopt concave objective functions, the analysis is restricted to examining the first and the second order conditions to maximize the Hamiltonians. A main theoretical originality of this study is to describe how players and policy makers should play to ensure balance between the real economic and the monetary sectors in the capitalist economy. The auxiliary equations do not have any stable steady state points under the linear functions. The game requires two rules to have a solution. One rule is the strategy rule that requires players to adopt a strategy that makes the strategy exchange point coincide with the steady state point in reaction to the other player’s strategy. The other rule is the policy rule that requires the policy-maker (Central Bank) to control the strategy exchange point of the monetary sector by undertaking buying operation. It is shown that the distribution rate of GDP to the monetary sector has a rigorous range for the game to have a solution. In addition, the solution has the character of a natural economy. We conclude that large deviations from the solution of the game (which we consider as deviations from the natural economy) are a fundamental cause of economic crisis. We investigate actual transitions of the distribution rate in USA, Euro area and Japan to prove our hypothesis in identifying the fundamental cause.

Suggested Citation

  • Koji Akimoto, 2014. "A Fundamental Cause of Economic Crisis―A Macro-economic Game between the Real Economic Sector and Monetary Sector," International Journal of Economic Sciences, Prague University of Economics and Business, vol. 2014(4), pages 01-37.
  • Handle: RePEc:prg:jnljes:v:2014:y:2014:i:4:id:20:p:01-37
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    References listed on IDEAS

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    5. Kaitala, Veijo & Pohjola, Matti, 1990. "Economic Development and Agreeable Redistribution in Capitalism: Efficient Game Equilibria in a Two-Class Neoclassical Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 421-438, May.
    6. Lancaster, Kelvin, 1973. "The Dynamic Inefficiency of Capitalism," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1092-1109, Sept.-Oct.
    7. Basar, Tamer & Haurie, Alain & Ricci, Gianni, 1985. "On the dominance of capitalists leadership in a Feedback-Stackelberg solution of a differential game model of capitalism," Journal of Economic Dynamics and Control, Elsevier, vol. 9(1), pages 101-125, September.
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    Cited by:

    1. Koji Akimoto, 2016. "Can a Natural Economy Operate in Macroeconomy? A Caution for Deviation from Natural Economy," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 2(1), pages 123-142, March.
    2. Pavel Potužák, 2017. "Jaká je optimální míra úspor z pohledu příjemců úroků? [What is the Optimum Saving Rate from the Perspective of the Receivers of Interest?]," Politická ekonomie, Prague University of Economics and Business, vol. 2017(1), pages 45-61.

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    More about this item

    Keywords

    economic crisis; strategy rule; unbalance of the real economic sector and the monetary sector; policy rule; natural economy; differential game;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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