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Econophysics of Business Cycles: Aggregate Economic Fluctuations, Mean Risks and Mean Square Risks

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  • Victor Olkhov

Abstract

This paper presents hydrodynamic-like model of business cycles aggregate fluctuations of economic and financial variables. We model macroeconomics as ensemble of economic agents on economic space and agent's risk ratings play role of their coordinates. Sum of economic variables of agents with coordinate x define macroeconomic variables as functions of time and coordinates x. We describe evolution and interactions between macro variables on economic space by hydrodynamic-like equations. Integral of macro variables over economic space defines aggregate economic or financial variables as functions of time t only. Hydrodynamic-like equations define fluctuations of aggregate variables. Motion of agents from low risk to high risk area and back define the origin for repeated fluctuations of aggregate variables. Economic or financial variables on economic space may define statistical moments like mean risk, mean square risk and higher. Fluctuations of statistical moments describe phases of financial and economic cycles. As example we present a simple model relations between Assets and Revenue-on-Assets and derive hydrodynamic-like equations that describe evolution and interaction between these variables. Hydrodynamic-like equations permit derive systems of ordinary differential equations that describe fluctuations of aggregate Assets, Assets mean risks and Assets mean square risks. Our approach allows describe business cycle aggregate fluctuations induced by interactions between any number of economic or financial variables.

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  • Victor Olkhov, 2017. "Econophysics of Business Cycles: Aggregate Economic Fluctuations, Mean Risks and Mean Square Risks," Papers 1709.00282, arXiv.org.
  • Handle: RePEc:arx:papers:1709.00282
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    File URL: http://arxiv.org/pdf/1709.00282
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    References listed on IDEAS

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    1. S. Rebelo., 2010. "Real Business Cycle Models: Past, Present, and Future," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 10.
    2. Victor Olkhov, 2017. "Non-Local Macroeconomic Transactions and Credits-Loans Surface-Like Waves," Papers 1706.07758, arXiv.org.
    3. Victor Olkhov, 2017. "Econophysics of Macroeconomics: "Action-at-a-Distance" and Waves," Papers 1702.02763, arXiv.org.
    4. Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2017. "Macrofinancial History and the New Business Cycle Facts," NBER Macroeconomics Annual, University of Chicago Press, vol. 31(1), pages 213-263.
    5. Masahisa Fujita, 2010. "The Evolution Of Spatial Economics: From Thünen To The New Economic Geography," The Japanese Economic Review, Japanese Economic Association, vol. 61(1), pages 1-32.
    6. Victor Olkhov, 2017. "Econophysics of Macro-Finance: Local Multi-fluid Models and Surface-like Waves of Financial Variables," Papers 1706.01748, arXiv.org.
    7. Victor Zarnowitz, 1992. "Business Cycles: Theory, History, Indicators, and Forecasting," NBER Books, National Bureau of Economic Research, Inc, number zarn92-1.
    8. Olkhov, Victor, 2017. "Quantitative wave model of macro-finance," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 143-150.
    9. Olkhov, Victor, 2016. "On Economic Space notion," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 372-381.
    10. Victor Olkhov, 2017. "Econophysics Macroeconomic Model," Papers 1701.06625, arXiv.org.
    11. Nobuhiro Kiyotaki, 2011. "A perspective on modern business cycle theory," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 195-208.
    12. repec:fip:fedreq:y:2011:i:3q:p:195-208:n:vol.97no.3 is not listed on IDEAS
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    Cited by:

    1. Victor Olkhov, 2018. "Econophysics Beyond General Equilibrium: the Business Cycle Model," Papers 1804.04721, arXiv.org.

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