Transactions between Agents and Business Cycle Model

Abstract

This paper presents business cycle model that is not based on assumptions of general equilibrium framework. We describe economic transactions between agents and assessment of agents risk as ground and tools for business cycle modeling. We treat agents risk ratings x as their coordinates x on economic space. Aggregates of agents variables with risk ratings x determine extensive macro variables as functions of x. Economic and financial transactions between agents with risk ratings x and y determine macro transactions as functions of x and y and define evolution of macro variables at points x and y. We describe evolution and interactions between different macro transactions by system of economic equations. We show that business cycles are described as consequence of the system of economic equations on macro transactions. As example we present simple model interactions between two macro transactions. We describe Credit transactions CL(t,x,y) that provide Loans from Creditors at point x to Borrowers at point y and Loan-Repayment transactions LR(t,x,y) that describe repayments from Borrowers at point y to Creditors at point x. We describe these macro transactions by the system of economic equations and derive from them the system of ordinary differential equations that describe business cycle fluctuations and growth of macro Credits C(t) and macro Loan-Repayments LR(t) of the entire economics at moment t. Our model can describe business cycle fluctuations and growth for any number of extensive macroeconomic and financial variables.