(S,s) inventory dynamics and self-organized criticality |
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Authors: | MAKOTO NIREI |
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Institution: | Department of Economics, University of Chicago, Illinois, U.S.A. |
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Abstract: | This paper proposes a new model of self-organized criticality in order to explain large fluctuations of aggregate production in an (S,s) economy. It is shown that the inventory distribution in an (S,s) economy always converges to a unique steady state, and that aggregate production exhibits a peculiar instability at the steady state: the propagation effect of a demand shock on aggregate production follows a power law.The model differs from previous models of self-organized criticality in that it incorporates a global interaction in the network. The global interaction is interpreted as a representation of market transactions with which economists are familiar. The other novelty of the paper is that an intrinsic instability of (S,s) economies is found. Many small non-linearities in the (S,s) economy may not be cancelled out in aggregation. Instead, they play a key role in organizing the fluctuations of aggregate production. |
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Keywords: | C60 E32 Self-organized criticality inventory dynamics (S s) economy global interaction endogenous fluctuation |
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