Olkhov, Victor (2021): Theoretical Economics and the SecondOrder Economic Theory. What is it?
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Abstract
The economic and financial variables of economic agents determine macroeconomic variables. Current models consider agents’ variables that are determined by the sums of values and volumes of agents’ trades during some time interval Δ. We call them firstorder economic variables. We describe how the volatilities and correlations of market trade values and volumes determine price volatility. We argue that such a link requests consideration of agents’ economic variables of the second order that are composed of sums of squares of agents’ transactions during Δ. Almost any variable of the first order should be complemented by its secondorder pair. Respectively, the sums of agents’ secondorder variables introduce macroeconomic variables of the second order. The description of the first and secondorder macroeconomic variables establishes the subject of secondorder economic theory. We highlight that the complexity of secondorder economic theory essentially restricts any hopes for precise predictions of price probability and, at best, could provide estimates of price volatility. That limits the predictions of price probability to Gauss’s approximations only.
Item Type:  MPRA Paper 

Original Title:  Theoretical Economics and the SecondOrder Economic Theory. What is it? 
English Title:  Theoretical Economics and the SecondOrder Economic Theory. What is it? 
Language:  English 
Keywords:  theoretical economics; price probability; volatility; market trades; expectations 
Subjects:  A  General Economics and Teaching > A1  General Economics C  Mathematical and Quantitative Methods > C0  General E  Macroeconomics and Monetary Economics > E0  General E  Macroeconomics and Monetary Economics > E1  General Aggregative Models E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles G  Financial Economics > G0  General 
Item ID:  120536 
Depositing User:  Victor Olkhov 
Date Deposited:  26 Mar 2024 14:54 
Last Modified:  26 Mar 2024 14:54 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/120536 
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Theoretical Economics and the SecondOrder Economic Theory. What is it? (deposited 02 Dec 2021 05:59)
 Theoretical Economics and the SecondOrder Economic Theory. What is it? (deposited 26 Mar 2024 14:54) [Currently Displayed]