Econophysics Macroeconomic Model

TL;DR

This paper develops a macroeconomic model inspired by multi-particle physics, deriving hydrodynamic-like equations and wave phenomena to explain economic fluctuations and crises.

Contribution

It introduces a novel macroeconomic modeling approach based on parallels with multi-particle systems, deriving new equations and wave dynamics on economic space.

Findings

Derived macroeconomic hydrodynamic-like equations.

Identified macroeconomic wave phenomena with potential for economic crises.

Showed how local interactions influence macroeconomic variable evolution.

Abstract

This paper presents macroeconomic model that is based on parallels between macroeconomic multi-agent systems and multi-particle systems. We use risk ratings of economic agents as their coordinates on economic space. Aggregates of economic or financial variables like Investment, Assets, Demand, Credits and etc. of economic agents near point x define corresponding macroeconomic variables as functions of time t and coordinates x on economic space. Parallels between multi-agent and multi-particle systems on economic space allow describe transition from economic kinetic-like to economic hydrodynamic-like approximation and derive macroeconomic hydrodynamic-like equations on economic space. Economic or financial transactions between economic agents determine evolution of macroeconomic variables This paper describes local macroeconomic approximation that takes into account transactions between economic agents with coordinates near same point x on economic space only and describes interaction between macroeconomic variables by linear differential operators. For simple model of interaction between macroeconomic variables as Demand on Investment and Interest Rate we derive hydrodynamic-like equations in a closed form. For perturbations of these macroeconomic variables we derive macroeconomic wave equations. Macroeconomic waves on economic space can propagate with exponential growth of amplitude and cause irregular time fluctuations of macroeconomic variables or induce economic crises.