New Essentials of Economic Theory III. Economic Applications

Olkhov, Victor (2019): New Essentials of Economic Theory III. Economic Applications.

Abstract

This paper presents applications of our theory to description of particular economic problems. We give all definitions and equations in Part I and II of our work. Here we argue propagation of small perturbations of economic variables and transactions on economic space. We show that small perturbations may follow wave equations that have parallels to propagation of sound waves and surface waves in fluids. We underline that nature of economic waves is completely different from waves in physical fluids but parallels between them may be useful for their studies. Wave generation, propagation and interactions are the most general properties of any complex system. Descriptions of economic waves on economic space fill existing gap in economic modeling. Usage of economic space allows distribute agents by their risk ratings as coordinates. Agents on economic space cover economic domain bounded by minimum and maximum risk grades. Change of risk ratings of agents due to their economic activity, economic processes or other factors induce flows of economic variables, transactions and expectations. Borders of economic domain cause fluctuations of economic flows and mean risks and these fluctuations describe business cycles. For example fluctuations of credit flows model credit cycles, investment flows model investment cycles and etc. Further we model assets price disturbances as consequences of relations between transactions and expectations. As last economic sample we argue classical Black-Scholes-Merton option pricing model and discuss problems those arise from modeling on economic space.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic Theory, Economic Waves, Business Cycles, Assets Pricing, Option pricing
• Subjects: C - Mathematical and Quantitative Methods > C0 - General; C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; G - Financial Economics > G0 - General; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates

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