Econophysics of Macroeconomics: "Action-at-a-Distance" and Waves

TL;DR

This paper introduces a macroeconomic model using economic space and wave equations to describe macroeconomic variables and their dynamics, highlighting the role of non-local interactions and wave phenomena in economic stability and forecasting.

Contribution

It develops a novel macroeconomic framework based on hydrodynamic-like equations and wave dynamics on economic space, incorporating non-local agent interactions.

Findings

Economic waves can grow exponentially, potentially destabilizing the economy.

Wave phenomena are significant for macroeconomic modeling and forecasting.

Non-local interactions are crucial in understanding macroeconomic dynamics.

Abstract

We present macroeconomic model that describes evolution of macroeconomic variables and macroeconomic waves on economic space. Risk ratings of economic agents play role of their coordinates on economic space. Aggregation of economic variables like Assets and Investment, Credits and Loans of economic agents at point x define corresponding macroeconomic variables as functions of time t and coordinates x on economic space. Evolution of macroeconomic variables is determined by economic and financial transactions between economic agents. Such transactions can occur between economic agents with any coordinates x and y and that reflect non-local "action-at-a-distance" character of internal macroeconomic interactions. For instance, Buy-Sell transactions between points x and y on economic space define dynamics of Assets at point x and Investment at point y. Aggregates of transactions between economic agents at point x and y on economic space define economic fields as functions of two coordinates. To describe dynamics of economic fields on economic space we derive hydrodynamic-like equations. For simple models of interactions between economic fields we derive hydrodynamic-like equations in a closed form and obtain wave equations for their perturbations. Economic field waves propagate on economic space and their amplitudes can grow up as exponent in time and may disturb economic stability. Diversities of macroeconomic and financial waves on economic space in simple models uncover importance of wave processes for macroeconomic modeling and forecasting.