Modeling business cycles via collective risk fluctuations in economic agents' risk space.
problem Understanding and predicting business cycles through economic agents' risk dynamics.
method Continuous numerical risk grades for economic agents, modeling collective economic variables and flows as functions of risk coordinates, deriving equations for their evolution.
result Business and credit cycles are explained as fluctuations of collective economic variables and their mean risks in the risk space of economic agents.
Modeling GDP growth rates using Lévy flights with confining potential.
problem Understanding the impact of firm size fluctuations on GDP.
method Combining microscopic firm growth rates with macroscopic GDP, using Lévy-stable fluctuations and a confining potential.
result The model accurately predicts 200 years of US GDP growth rates.
Masanao Aoki developed a new methodology for a basic problem of economics: deducing rigorously the macroeconomic dynamics as emerging from the interactions of many individual agents. This includes deduction of the fractal / intermittent fluctuations of macroeconomic quantities from the granularity of the mezo-economic …
The average economic agent is often used to model the dynamics of simple markets, based on the assumption that the dynamics of many agents can be averaged over in time and space. A popular idea that is based on this seemingly intuitive notion is to dampen electric power fluctuations from fluctuating sources (as e.g. wi…
The dynamic network of relationships among corporations underlies cascading economic failures including the current economic crisis, and can be inferred from correlations in market value fluctuations. We analyze the time dependence of the network of correlations to reveal the changing relationships among the financial,…
Model shows how economic interactions and regulation affect wealth inequality.
problem Understanding how interactions and regulation impact wealth inequality.
method Agent-based model with multiplicative stochastic fluctuations and interactions.
result System evolves towards a limiting stationary distribution with a Pareto tail under strong global regulation.
SOC theory explains financial volatility and economic shocks.
problem Excess volatility and small shocks causing large disruptions.
method Explains system behavior at critical point with fat-tailed fluctuations.
result SOC theory offers a plausible solution to financial market volatility.
In this study, the fluctuation-dissipation theory is invoked to shed light on input-output interindustrial relations at a macroscopic level by its application to IIP (indices of industrial production) data for Japan. Statistical noise arising from finiteness of the time series data is carefully removed by making use of…
Economic growth patterns show universal scaling properties across sectors and time.
problem Whether growth dynamics of economic systems are persistent and universal remains an open question.
method Analysis of publicly-traded U.S. manufacturing firms and other sectors over different time periods.
result Scaling properties of firm growth are persistent and universal across different sectors and time periods.
In this editorial guide for the special issue on econophysics, we give a unique review of this young but quickly growing discipline. A suggestive taxonomy of the development is proposed by making a distinction between classical econophysics and modern econophysics. For each of these two stages of development, we identi…
Stable cooperation emerges in fluctuating environments.
problem Evolutionary stability of cooperation in fluctuating conditions.
method Agents with fluctuating wealth share public goods, leading to cooperation.
result Agents with cooperation produce an advantage in fluctuating environments.
The cluster analysis methods are used in order to perform a comparative study of 15 EU countries in relation with the fluctuations of some basic macroeconomic indicators. The statistical distances between countries are calculated for various moving time windows, and the time variation of the mean statistical distance i…
The study revises GDPpc trends and redistributes economic power among countries.
problem Analyzing global economic power shifts over time.
method Modeling GDPpc as a trend and fluctuations, analyzing historical data.
result Revised GDPpc trends show significant shifts in global economic power.
The thermodynamics of markets is analyzed, revealing parallels with thermodynamic laws.
problem Understanding economic systems through thermodynamic principles.
method Derivation and analysis of thermodynamic laws applied to economic systems.
result Deep analogy between thermodynamic and economic parameters established.
We discuss superstatistics theory of labour productivity. Productivity distribution across workers, firms and industrial sectors are studied empirically and found to obey power-distributions, in sharp contrast to the equilibrium theories of mainstream economics. The Pareto index is found to decrease with the level of a…
At what level should government or companies support research? This complex multi-faceted question encompasses such qualitative bonus as satisfying natural human curiosity, the quest for knowledge and the impact on education and culture, but one of its most scrutinized component reduces to the assessment of economic pe…
A model of open economics composed of producers and speculators is investigated by numerical simulations. The capital flows from the environment to the producers and from them to the speculators. The price fluctuations are suppressed by the speculators. When the aggressivity of the speculators grows, there is a transit…
We give emphasis on the use of chaos-based rigorous nonlinear technique called Visibility Graph Analysis, to study one economic time series - gold price of USA. This method can offer reliable results with fiinite data. This paper reports the result of such an analysis on the times series depicting the fluctuation of go…
Scaling properties in financial fluctuations are reviewed from the standpoint of statistical physics. We firstly show theoretically that the balance of demand and supply enhances fluctuations due to the underlying phase transition mechanism. By analyzing tick data of yen-dollar exchange rates we confirm two fractal pro…
We introduce a simple model for addressing the controversy in the study of financial systems, sometimes taken as brownian-like processes and other as critical systems with fluctuations of arbitrary magnitude. The model considers a collection of economical agents which establish trade connections among them according to…
Study identifies contagion in aggregated defaults despite environmental changes.
problem Identify contagion in aggregated default counts with fluctuating probabilities.
method Compare three contagion mechanisms (Davis-Lo, Torri, Vasicek) under i.i.d. and hierarchical specifications.
result Threshold contagion is largely absorbed into environmental heterogeneity, while cumulative contagion leaves a persistent signature.
Growth rate of real GDP per capita is represented as a sum of two components -- a monotonically decreasing economic trend and fluctuations related to a specific age population change. The economic trend is modeled by an inverse function of real GDP per capita with a numerator potentially constant for the largest develo…
Emerging economies use countercyclical policies to manage crises and dominant currencies.
problem Managing economic crises and fluctuations in dominant currencies like USD and EUR.
method Theoretical analysis, case studies, econometric modeling.
result Emerging economies can stabilize growth with countercyclical monetary policies.
Truncated Lévy flights are random walks in which the arbitrarily large steps of a Lévy flight are eliminated. Since this makes the variance finite, the central limit theorem applies, and as time increases the probability distribution of the increments becomes Gaussian. Here, truncated Lévy flights with correlated fluct…
Standard economic theory assumes that agents in markets behave rationally. However, the observation of extremely large fluctuations in the price of financial assets that are not correlated to changes in their fundamental value, as well as the extreme instance of financial bubbles and crashes, imply that markets (at lea…
China's rapid economic growth resulted in serious air pollution, which caused substantial losses to economic development and residents' health. In particular, the road transport sector has been blamed to be one of the major emitters. During the past decades, fluctuation in the international oil prices has imposed signi…
We present examples of agent-based and stochastic models of competition and business processes in economics and finance. We start from as simple as possible models, which have microscopic, agent-based, versions and macroscopic treatment in behavior. Microscopic and macroscopic versions of herding model proposed by Kirm…
New estimator reveals intraday betas mainly driven by correlations.
problem Intraday fluctuations in market betas due to time-varying volatility.
method Proposes a novel subsampled quadrant estimator for high-frequency financial data.
result Intraday variation in betas primarily driven by intraday variation in correlations.
Model credit ratings using economic states with Markov chains.
problem Credit rating migration influenced by economic state changes.
method Developed a Markov chain model for credit ratings conditional on economic states.
result Derived asymptotic behavior of the rating process using Markov theory.
It is demonstrated that the US economy has on the long-term in reality been governed by the Keynesian approach to economics independent of the current official economical policy. This is done by calculating the two-point correlation function between the fluctuations of the DJIA and the US public debt. We find that the …
The paper proposes a mechanism for business cycles using coupled real economy and stock market dynamics.
problem Understanding and predicting business cycles.
method Developed a dynamic stock market model based on opinion interactions and integrated it into a macroeconomic framework.
result The model generates quasiperiodic fluctuations (business cycles) through coupled real economy and stock market dynamics.
Financial markets have been extensively studied as highly complex evolving systems. In this paper, we quantify financial price fluctuations through a coupled dynamical system composed of phase oscillators. We find a Financial Coherence and Incoherence (FCI) coexistence collective behavior emerges as the system evolves …
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 syste…
We make use of wavelet transform to study the multi-scale, self similar behavior and deviations thereof, in the stock prices of large companies, belonging to different economic sectors. The stock market returns exhibit multi-fractal characteristics, with some of the companies showing deviations at small and large scale…
We introduce a stochastic model to explain a double power-law distribution which exhibits two different Paretian behaviors in the upper and the lower tail and widely exists in social and economic systems. The model incorporates fitness consideration and noise fluctuation. We find that if the number of variables (e.g. t…
Favorit strategy helps farmers mitigate market price fluctuations.
problem Mitigating adverse impact of price fluctuation on farmers.
method Analyzes historical price data to select optimal market timing for crops.
result Developed a strategy to reduce volatility risk for Indian farmers.
Model shows how biased beliefs can lead to economic polarization.
problem Economic polarization due to biased beliefs in interacting markets.
method Evolutionary model of stock market agents with biased beliefs, real economy described by multiplier-accelerator framework.
result Polarized beliefs can lead to multiple steady states of income and price levels, reflecting optimism or pessimism.
The energy transition is well underway in most European countries. It has a growing impact on electric power systems as it dramatically modifies the way electricity is produced. To ensure a safe and smooth transition towards a pan-European electricity production dominated by renewable sources, it is of paramount import…
We propose coalescent mechanism of economic grow because of redistribution of external resources. It leads to Zipf distribution of firms over their sizes, turning to stretched exponent because of size-dependent effects, and predicts exponential distribution of income between individuals. We also present new approach to…
Model uses Navier-Stokes equations to assess liquidity and systemic risk.
problem Traditional models fail to capture real market fluctuations and extreme events.
method Develops and validates a mathematical model based on Navier-Stokes equations, incorporating 13 macroeconomic and financial parameters.
result Model effectively describes liquidity dynamics, systemic risk, and extreme scenarios.
Forecasting stock market decline and recovery post-COVID-19.
problem Analyzing exogenous risk's impact on stock markets.
method Two case studies using historical data and stochastic fluctuations.
result 85% accuracy in predicting S&P500 index decline and recovery.
We provide a microfoundation for linear price impact models in a stationary market.
problem Deriving linear price impact models in a stationary market with asymmetric information.
method Deriving linear price impact models as the equilibrium of an agent-based system.
result The model shows compatibility with universal price diffusion at small times and non-universal mean-reversion at larger times.
We consider a stochastic model of investment on an asset of a stock market for a prudent investor. She decides to buy permanent goods with a fraction $\a$ of the maximum amount of money owned in her life in order that her economic level never decreases. The optimal strategy is obtained by maximizing the exponential gro…
In a stock market, the price fluctuations are interactive, that is, one listed company can influence others. In this paper, we seek to study the influence relationships among listed companies by constructing a directed network on the basis of Chinese stock market. This influence network shows distinct topological prope…
We study a class of heterogeneous agent-based models which are based on a basic set of principles, and the most fundamental operations of an economic system: trade and product transformations. A basic guiding principle is scale invariance, which means that the dynamics of the economy should not depend on the units used…
Study finds strong long-range correlations in financial markets, especially over longer time scales.
problem Understanding long-range correlations in limit order book markets.
method Ultra-high frequency order book data from NASDAQ Nordic, detrended fluctuation analysis (DFA).
result Strong evidence of long-range correlation in inter-event durations, becoming stronger over longer time scales.
What is the role of social interactions in the creation of price bubbles? Answering this question requires obtaining collective behavioural traces generated by the activity of a large number of actors. Digital currencies offer a unique possibility to measure socio-economic signals from such digital traces. Here, we foc…
Detailed empirical studies of publicly traded business firms have established that the standard deviation of annual sales growth rates decreases with increasing firm sales as a power law, and that the sales growth distribution is non-Gaussian with slowly decaying tails. To explain these empirical facts, a theory is dev…