Coupled Oscillator Model of the Business Cycle with Fluctuating Goods Markets

TL;DR

This paper develops a coupled oscillator model based on the Kuramoto model with inertia to analyze sectoral synchronization in the Japanese business cycle, incorporating fluctuating goods markets and examining shock stability.

Contribution

It introduces a novel coupled oscillator model with goods markets to study synchronization stability under shocks, extending previous models by including price elasticity effects.

Findings

Synchronization is stable for finite elasticity.

Zero elasticity leads to broken synchronization.

Model reproduces sectoral synchronization observed in Japanese data.

Abstract

The sectoral synchronization observed for the Japanese business cycle in the Indices of Industrial Production data is an example of synchronization. The stability of this synchronization under a shock, e.g., fluctuation of supply or demand, is a matter of interest in physics and economics. We consider an economic system made up of industry sectors and goods markets in order to analyze the sectoral synchronization observed for the Japanese business cycle. A coupled oscillator model that exhibits synchronization is developed based on the Kuramoto model with inertia by adding goods markets, and analytic solutions of the stationary state and the coupling strength are obtained. We simulate the effects on synchronization of a sectoral shock for systems with different price elasticities and the coupling strengths. Synchronization is reproduced as an equilibrium solution in a nearest neighbor graph. Analysis of the order parameters shows that the synchronization is stable for a finite elasticity, whereas the synchronization is broken and the oscillators behave like a giant oscillator with a certain frequency additional to the common frequency for zero elasticity.