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An Interacting Agent Model of Economic Crisis

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Document pages: 22 pages

Abstract: Most national economies are linked by international trade. Consequently,economic globalization forms a massive and complex economic network with stronglinks, that is, interactions arising from increasing trade. Various interestingcollective motions are expected to emerge from strong economic interactions ina global economy under trade liberalization. Among the various economiccollective motions, economic crises are our most intriguing problem. In ourprevious studies, we have revealed that the Kuramoto s coupled limit-cycleoscillator model and the Ising-like spin model on networks are invaluable toolsfor characterizing the economic crises. In this study, we develop amathematical theory to describe an interacting agent model that derives theKuramoto model and the Ising-like spin model by using appropriateapproximations. Our interacting agent model suggests phase synchronization andspin ordering during economic crises. We confirm the emergence of the phasesynchronization and spin ordering during economic crises by analyzing variouseconomic time series data. We also develop a network reconstruction model basedon entropy maximization that considers the sparsity of the network. Herenetwork reconstruction means estimating a network s adjacency matrix from anode s local information. The interbank network is reconstructed using thedeveloped model, and a comparison is made of the reconstructed network with theactual data. We successfully reproduce the interbank network and the knownstylized facts. In addition, the exogenous shock acting on an industrycommunity in a supply chain network and financial sector are estimated.Estimation of exogenous shocks acting on communities of in the real economy inthe supply chain network provide evidence of the channels of distresspropagating from the financial sector to the real economy through the supplychain network.

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