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Register a new userThe universal shape of economic recession and recovery after a shock
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We show that a simple and intuitive three-parameter equation fits remarkably well the evolution of the gross domestic product (GDP) in current and constant dollars of many countries during times of recession and recovery. We then argue that this equation is the response function of the economy to isolated shocks, hence that it can be used to detect large and small shocks, including those which do not lead to a recession; we also discuss its predictive power. Finally, a two-sector toy model of recession and recovery illustrates how the severity and length of recession depends on the dynamics of transfer rate between the growing and failing parts of the economy.
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This paper analyzes the equilibrium distribution of wealth in an economy where firms productivities are subject to idiosyncratic shocks, returns on factors are determined in competitive markets, dynasties have linear consumption functions and government imposes taxes on capital and labour incomes and equally redistributes the collected resources to dynasties. The equilibrium distribution of wealth is explicitly calculated and its shape crucially depends on market incompleteness. In particular, a Paretian law in the top tail only arises if capital markets are incomplete. The Pareto exponent depends on the saving rate, on the net return on capital, on the growth rate of population and on portfolio diversification. On the contrary, the characteristics of the labour market mostly affects the bottom tail of the distribution of wealth. The analysis also suggests a positive relationship between growth and wealth inequality.
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Technological improvement is the most important cause of long-term economic growth, but the factors that drive it are still not fully understood. In standard growth models technology is treated in the aggregate, and a main goal has been to understand how growth depends on factors such as knowledge production. But an economy can also be viewed as a network, in which producers purchase goods, convert them to new goods, and sell them to households or other producers. Here we develop a simple theory that shows how the network properties of an economy can amplify the effects of technological improvements as they propagate along chains of production. A key property of an industry is its output multiplier, which can be understood as the average number of production steps required to make a good. The model predicts that the output multiplier of an industry predicts future changes in prices, and that the average output multiplier of a country predicts future economic growth. We test these predictions using data from the World Input Output Database and find results in good agreement with the model. The results show how purely structural properties of an economy, that have nothing to do with innovation or human creativity, can exert an important influence on long-term growth.
Modelling all possible life cycles of a company in a highly competitive economic environment gives a significant advantage to the owner in his business investment activities. This article proposes and analyses a dynamic model of a companys life cycle with known action costs and transition probabilities, that can be affected by an outside influence. For this task, the Markov model was utilized. The proposed model is illustrated on a task of determining an advertising policy for a car dealership, that would increase the stock equity of a company. The result demonstrates the usefulness of a model for use in determining future actions of a company. We also review multiple models of the influence of outside factors on a companys total capitalization.
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