Munich Personal RePEc Archive

Economic Transactions Govern Business Cycles

Olkhov, Victor (2018): Economic Transactions Govern Business Cycles.

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This paper presents the business cycle model without using assumptions of general equilibrium. All economic agents are at risk but not for all agents risk assessments are performed. We propose that risk assessment can be completed for all agents and suggest use agents risk ratings as their coordinates x. We show that macroeconomics as ABM is described on bounded economic domain of economic space. Transactions between agents describe evolution of their economic and financial variables. Aggregations of economic or financial variables of agents in a unit volume near point x determine macro variables as functions of x. Aggregations of transactions between agents in unit volumes near points x and y determine macro transactions as functions of x and y. Macro transactions describe change of macro variables near points x and y. We explain how evolution of macro transactions can be described by economic equations on economic space. We show that business cycle fluctuations are consequence of these equations. We treat the nature of the business cycle fluctuations of particular macro variable as oscillations of “mean risk” of this economic variable on bounded economic domain. As example we describe interactions between transactions CL(t,x,y) that provide Loans from Creditors at point x to Borrowers at point y and transactions LR(t,x,y) that describe repayments from Borrowers at point y to Creditors at point x. Starting with economic equations we derive the system of ordinary differential equations that describe the business cycle fluctuations of macro Credits C(t) and macro Loan-Repayments LR(t) of the entire economics.

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