Technical Innovations and Banking in a Quantum Economy

The economy often moves in large jumps. For example, bank runs can quickly cause an economy to suddenly drop into a deep recession. In this paper, bank approval of loans to a genius entrepreneur may cause an economy to jump to a higher income level or growth rate. In a simple model, this implies that the economy has the possibility to exist in discrete states, a ground state (lowest production level) or an excited state (higher production levels). In a more dynamic model, bank approval of the loan causes an apparent technology shock that temporarily increases economic growth. In this paper, the economy is modeled as a regime switching model, i.e. a Markov-Switching model.