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SOE: Fachverband Physik sozio-ökonomischer Systeme

SOE 6: Award Session: Young Scientist Award for Socio- and Econophysics (YSA)

SOE 6.1: Hauptvortrag

Montag, 12. März 2018, 15:00–15:45, MA 001

Tipping points and crises in simple macroeconomic models — •Jean-Philippe Bouchaud — CFM, 23 rue de l’Université, Paris, France

We explore the possible types of phenomena that simple macroeconomic models with interactions, frictions and heterogeneities can reproduce. We propose a methodology, inspired by statistical physics, that characterizes a model through its ”phase diagram" in the space of parameters. Through this looking glass, we investigate stylized models and find generic phase transitions (or tipping points) between a ”good economy" state where unemployment/volatility are low and confidence is high, and a ”bad economy" state where unemployment/volatility are high and confidence is low. If the parameters are such that the system is close to such transitions, any small fluctuation may be amplified, leading to a large level of endogenous volatility. This can cause the monetary policy itself to trigger instabilities and be counter-productive. We identify several theoretical scenarios for synchronization and instabilities in large economies that can generate aggregate volatility and acute crises without any identifiable idiosyncratic shocks. This suggests an interesting resolution of the *small shocks, large business cycles* puzzle.