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SIMPLE MODEL OF ASYMMETRICAL BUSINESS CYCLES: INTERACTIVE DYNAMICS OF A LARGE NUMBER OF AGENTS WITH DISCRETE CHOICES

Published online by Cambridge University Press:  01 December 1998

Masanao Aoki
Masanao Aoki
Affiliation:
University of California, Los Angeles
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Abstract

A (jump) Markov process (generalized birth-and-death process) is used to model interactions of a large number of agents subject to field-type externalities. Transition rates are (nonlinear) functions of the composition of the population of agents classified by the choices they make. The model state randomly moves from one equilibrium to another, and exhibits asymmetrical oscillations (business cycles). It is shown that the processes can have several locally stable equilibria, depending on the degree of uncertainty associated with consequences of alternative choices. There is a positive probability of transition between any pair of such basins of attraction, and mean first-passage times between equilibria can be different when different pairs of basins are calculated.

Keywords

Business CyclesHysteresisMultiple EquilibriaUncertain ChoicesMean-Field EffectsMean First-Passage Times
Type
Research Article
Information
Macroeconomic Dynamics , Volume 2 , Issue 4 , December 1998 , pp. 427 - 442
Copyright
© 1998 Cambridge University Press

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