Modelling Economic and Financial Fluctuations, Transactions, and Waves

22 Pages Posted: 1 Aug 2017

Date Written: July 16, 2017

Abstract

This paper describes evolution of economic and financial transactions between agents as ground for modelling fluctuations of economic and financial variables. We use risk ratings x of agents as their coordinates x on economic space. Transactions between agents define evolution of their economic and financial variables. Aggregates of agent’s variables like Investment or Assets, Profits or Credits allocated near point x on economic space describe corresponding macro variables as functions of time and x. Aggregates of economic and financial transactions between agents at points x and y define corresponding macro transactions between points of economic space as function of x and y. Dynamics of macro transactions define evolution of macro variables of entire economics. To describe macro transactions and interactions between them we derive hydrodynamic-like equations on economic space. As example, for simple interaction between two macro transactions as Assets-Liabilities and Income-on-Assets we derive hydrodynamic-like equations in a closed form. That allows model relations between two macro transactions in a self-consistent manner, derive economic wave equations on perturbations of macro transactions and study simple solutions and consequences. Economic waves of macro transactions describe propagation of their disturbances on economic space from high to low risk agents or vise versa and define evolution of macro variables of entire economics. Existence and diversities of economic waves in simple models clarifies importance of wave processes for economic modelling.

Keywords: Economic Fluctuations; Economic Transactions; Risk Ratings; Economic Space; Economic Wave Equations

JEL Classification: C00; E00; F00; G00

Suggested Citation

Olkhov, Victor, Modelling Economic and Financial Fluctuations, Transactions, and Waves (July 16, 2017). Available at SSRN: https://ssrn.com/abstract=3011442 or http://dx.doi.org/10.2139/ssrn.3011442

Victor Olkhov (Contact Author)

Independent ( email )

Moscow, 129110
Russia

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