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What Causes Recessions? A Physicists’ Complex Systems Model

By Feux Follets following x   2018 Jun 11, 10:06am 49 views   0 comments   watch   sfw   quote     share    

This predictor is seven for seven. Though: there are two recent false positives — shortly following the 2001 and 2008 recessions

Received some very interesting comments from Yaneer Bar-Yam to my recent Evonomics post— “Capital’s Share of Income is Far Higher than You Think.” He pointed me to his very interesting paper (link below), “Preliminary steps toward a universal economic dynamics for monetary and fiscal policy.”

1. What is the function in this model that “causes” capital gains? This always strikes me as the core problem in a complete SFC model where flows (including holding gain “flows”) balance to and fully explain (change in) net worth: if you can write a reaction function that predicts asset-price changes, you’re a very rich person…

2. The recession-prediction based on investment/consumption ratio misses a bunch of recessions (false negatives). Contrasted here with a personal favorite: every recession since 1970 has been preceded by a year-over-year decline in real household total assets/net worth. (Including liabilities to arrive at net worth instead of just using assets adds no predictive value).

The investment:consumption ratio bruited as a predictor/cause in the paper is four for seven, and even there: the first year of decline in this ratio seems late in each case (as opposed to the measure’s peak) to suggest it as a cause:

More: https://angrybearblog.com/2018/06/what-causes-recessions-a-physicists-complex-systems-model.html

Research Paper (52 pages) http://necsi.edu/research/economics/econunivers_2.pdf

Related: http://patrick.net/post/1316560/2018-06-08-capital-s-share-of-income-is-way-higher-than-you-think

#Economics #Recessions #Predictors
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