*From:* Igor Matutinović [mailto:[EMAIL PROTECTED]
*Sent:* Monday, November 17, 2008 10:24 AM
*To:* 'fis'
*Subject:* [Fis] Economic modeling
Dear All
one detail that refers to postive feedback dynamics: during the
expansion phase of the business cycle competitive interactions and
optimistic expectations drive investments in new productive capacity.
Because capacity cannot be added continously - one have to build a new
plant to add a marginal init of output once the extant capaciyt is fully
used - there is a high probability of overshoot during the expansion
phase. During the recession the plants are closed and workers laid off
and in this way the excess capacity built during the expansion phase is
brought in line with real demand and purchasing power based on long term
productivity growth. There is, however, a high probability that output
will be brought below that line, due to the positive feedback that work
in a reversed way and depressed expectations of businesses and consumers
during the contraction phase.
Best
Igor
Hi Robin (and other FISers),
I hope this isn't just being picky.
I would argue that both booms and busts are driven by positive feedback.
Buying begets more buying in one instance and selling begets selling in
the other. Negative feedback tends to stabilize the dynamics of a system.
Regards,
Guy Hoelzer
on 11/14/08 5:00 AM, Robin Faichney (by way of Pedro Marijuan
<[EMAIL PROTECTED]>) at [EMAIL PROTECTED] wrote:
> Thursday, November 13, 2008, 7:54:55 PM, I wrote:
>
>> Not only economists have economic models.
>
>> In my opinion the most important complicating factor in economics, as
>> in other aspects of human culture, is the fact that every agent,
>> including institutions as well as individuals, models both other
>> agents and, in many cases, the system as a whole.
>
>> For instance, agents observe the economic behaviour of, and the deals
>> obtained by, many other agents. This informs consumer and business
>> confidence and is what enables the negative and positive feedback
>> loops that lead to booms and busts, respectively.
>
> Oops! It is, of course, positive feedback that causes bubbles (in
> particular sectors) and booms (across an economy), and negative
> feedback that causes busts.
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Dr. Igor Matutinovic
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