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Economic Crises
”International cooperation analysis of Asian political distance network constructed using event data”
Sotaro Sada , Keita Oikawa , Fusanori Iwasaki, Yuichi Ikeda
Front. Phys., 13 October 2022
Sec. Interdisciplinary Physics
Volume 10 - 2022
Economic integration is underway in East Asia and the Asia-Pacific region, including the Association of Southeast Asian Nations (ASEAN) community-building process, with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) coming into effect in 2018 and the Regional Comprehensive Economic Partnership (RCEP) in 2022. While these Regional Trade Agreements (RTAs) have deepened multilateral relations, there is an insufficient mechanism to quantify multilateral diplomacy within the region. Therefore, this study analyzed the region from three perspectives: countries that have contributed to diplomacy for intra-regional cooperation (diplomatic ranking), the cohesiveness of countries in diplomatic stances (diplomatic clusters), and the synchronization period of cooperative events (diplomatic synchronization); and we quantified them by the ranking of diplomatic centrality, blockmodeling of the signed network, and analytic signal, respectively. For analysis, we used bilateral event data to create a political distance network consisting of the original East Asia Summit (EAS) member countries (ASEAN+6) and the United States for the period 1985–2020 and to define diplomatic centrality. Diplomatic ranking indicated three major trends: 1985–1992, 1993–2011, and 2012–2020. Until 1992, Japan, the ASEAN member states (AMS), and Australia ranked at the top, and from 1993 to 2011, Japan and China almost dominated the top. Since 2012, AMS have joined Japan and China in the top ranks. Diplomatic clusters showed the stances of Australia and New Zealand were closest. Throughout the 36 years, the stances of Japan and Republic of Korea were also closer, followed by China, AMS, and the United States. Diplomatic synchronization quantified the progress of regionalism in East Asia. Furthermore, diplomatic rankings in synchronous periods revealed the difference between the diplomatic positions of Japan and China in East Asia and illustrated that AMS were at the center of multilateral diplomacy in the region in 2018–2019.
”An Interacting Agent Model of Economic Crisis”
Y. Ikeda,
arXiv:2001.11843,
2020/01 (Chapter 11 of the book titled by "Complexity, Heterogeneity and the Methods of Statistical Physics in Economics", Springer, 2020)
Most national economies are linked by international trade. Consequently, economic globalization forms a massive and complex economic network with strong links, that is, interactions arising from increasing trade. Various interesting collective motions are expected to emerge from strong economic interactions in a global economy under trade liberalization. Among the various economic collective motions, economic crises are our most intriguing problem. In our previous studies, we have revealed that the Kuramoto's coupled limit-cycle oscillator model and the Ising-like spin model on networks are invaluable tools for characterizing the economic crises. In this study, we develop a mathematical theory to describe an interacting agent model that derives the Kuramoto model and the Ising-like spin model by using appropriate approximations. Our interacting agent model suggests phase synchronization and spin ordering during economic crises. We confirm the emergence of the phase synchronization and spin ordering during economic crises by analyzing various economic time series data. We also develop a network reconstruction model based on entropy maximization that considers the sparsity of the network. Here network reconstruction means estimating a network's adjacency matrix from a node's local information. The interbank network is reconstructed using the developed model, and a comparison is made of the reconstructed network with the actual data. We successfully reproduce the interbank network and the known stylized facts. In addition, the exogenous shock acting on an industry community in a supply chain network and financial sector are estimated. Estimation of exogenous shocks acting on communities of in the real economy in the supply chain network provide evidence of the channels of distress propagating from the financial sector to the real economy through the supply chain network.
”Macroprudential Modeling Based on Spin Dynamics in a Supply Chain Network”
Y. Ikeda, H. Yoshikawa,
RIETI Discussion Paper Series 18-E-045, 1-25,
2018/07
The economic crisis of 2008 showed that conventional microprudential policy to ensure the soundness of individual banks was not sufficient, and prudential regulations to cover the whole financial sector were desired. Such regulations attract increasing attention, and policy related to those regulations is called macroprudential policy, which aims to reduce systemic risk in the whole financial sector by regulating the relationship between the financial sector and the real economy. In this paper, using a spin network model, we study channels of distress propagation from the financial sector to the real economy through the supply chain network in Japan from 1980 to 2015 and discuss good indicators for macroprudential policy. First, an estimation of the exogenous shocks acting on the communities of real economy in the supply chain network provides us evidence of the channels of distress propagation from the financial sector to the real economy through the supply chain network. Furthermore, causal networks between exogenous shocks and macroeconomic variables clarified the characteristics of the lead–lag relationship between exogenous shocks and macroeconomic variables as the bubble burst. In summary, monitoring temporal changes of exogenous shocks and the causal relationship among the exogenous shocks and macroeconomic variables will provide good indicators for macroprudential policy.
”Econophysics Point of View of Trade Liberalization: Community dynamics, synchronization, and controllability as example of collective motions”
Y. Ikeda,
RIETI Discussion Paper Series 16-E-026, 1-35,
2016/03
In physics, it is known that various collective motions exist. For instance, a large deformation of heavy nuclei at a highly excited state, whichsubsequently proceeds to fission, is a typical example. This phenomenon is a quantum mechanical collective motion due to strong nuclear force between nucleons in a microscopic system consisting of a few hundred nucleons. Most national economies are linked by international trade and consequently economic globalization forms a giant economic complex network with strong links, i.e., interactions due to increasing trade. In Japan, many small and medium enterprises could achieve higher economic growth by free trade based on the establishment of an economic partnership agreement (EPA), such as the Trans-Pacific Partnership (TPP). Thus, it is expected that various interesting collective motions will emerge in the global economy under trade liberalization. In this paper, we present collective motions in trade liberalization observed in the analysis of the industry sector-specific international trade data from 1995 to 2011 and production index time series from 1998 to 2015 for G7 countries. We discuss the results and implications for three collective motions: (i) synchronization of international business cycle, (ii) immediate propagation of economic risk, and (iii) difficulty of structural controllability during economic crisis.
”Direct Evidence for Synchronization in Japanese Business Cycles”
Y. Ikeda, H. Aoyama, H. Iyetomi, H. Yoshikawa,
Evolutionary and Institutional Economic Review, 10, 2, 315–327, 2013
We have analyzed the Indices of Industrial Production (Seasonal Adjustment Monthly Index) for a long period of 240 months (January 1988 to December 2007) in order to develop a deeper understanding of economic shocks. Angular frequencies estimated using the Hilbert transform are almost identical for the 16 industrial sectors in the indices. Moreover, partial phase locking was observed for the sectors. These are direct evidence of the synchronization present in Japanese business cycles. We also showed that the phase time series carries information on economic shocks. Common shock and individual shocks are separated using phase time series. The former dominates the economic shock in all of 1992, 1998 and 2001. The obtained results suggest that the business cycle may be described as dynamics of coupled limit cycle oscillators exposed to random individual shocks.
”Synchronization and the Coupled Oscillator Model in International Business Cycles”
Y. Ikeda
RIETI discussion paper, October 13-E-089,
2013/10
Synchronization in international business cycles attracts economists and physicists as an example of self-organization in the time domain. In economics, synchronization of the business cycles has been discussed using correlation coefficients between gross domestic product (GDP) time series. However, more definitive discussions using a suitable quantity describing the business cycles are needed. In this paper, we analyze the quarterly GDP time series for Australia, Canada, France, Italy, the United Kingdom, and the United States from Q2 1960 to Q1 2010 in order to obtain direct evidence for the synchronization and to clarify its origin. We find frequency entrainment and partial phase locking to be direct evidence of synchronization in international business cycles. Furthermore, a coupled limit-cycle oscillator model is developed to explain the mechanism of synchronization. In this model, the interaction due to international trade is interpreted as the origin of the synchronization.
”Coupled oscillator model of the business cycle with fluctuating goods markets”
Y. Ikeda, H. Aoyama, Y. Fujiwara, H. Iyetomi, K. Ogimoto, W. Souma and H. Yoshikawa
Progress of Theoretical Physics Supplement, 194, 111-121,
2012
The sectoral synchronization observed for the Japanese business cycle in the Indices of Industrial Production data is an example of synchronization. The stability of this synchronization under a shock, e.g., fluctuation of supply or demand, is a matter of interest in physics and economics. We consider an economic system made up of industry sectors and goods markets in order to analyze the sectoral synchronization observed for the Japanese business cycle. A coupled oscillator model that exhibits synchronization is developed based on the Kuramoto model with inertia by adding goods markets, and analytic solutions of the stationary state and the coupling strength are obtained. We simulate the effects on synchronization of a sectoral shock for systems with different price elasticities and the coupling strengths. Synchronization is reproduced as an equilibrium solution in a nearest neighbor graph. Analysis of the order parameters shows that the synchronization is stable for a finite elasticity, whereas the synchronization is broken and the oscillators behave like a giant oscillator with a certain frequency additional to the common frequency for zero elasticity.
”Correlated performance of firms in a transaction network”
Y. Ikeda, H. Aoyama, H. Iyetomi, Y. Fujiwara, W. Souma,
Journal of Economic Interaction and Coordination, 3, 1, 73-80, 2008/06
The correlation of firms’ performance on a transaction network is studied by analyzing financial and transaction data. Statistically significant correlation coefficients are obtained as evidence for the firm interactions. The firm interactions are taken into account in the basic equation of firm activity. Forty percent of residuals are explained by considering the firm interactions. The overall structure of the transaction network, i.e., the connectivity of industry sectors, is analyzed.
”Response of firm agent network to exogenous shock”
Y. Ikeda, H. Aoyama, H. Iyetomi, Y. Fujiwara, W. Souma, T. Kaizoji
Physica A: Statistical Mechanics and its Applications, 382, 1, 138-148, 2007/08
This paper describes an agent-based model of interacting firms, in which interacting firm agents rationally invest capital and labor in order to maximize payoff. Both transactions and production are taken into account in this model. First, the performance of individual firms on a real transaction network was simulated. The simulation quantitatively reproduced the cumulative probability distribution of revenue, material cost, capital, and labor. Then, the response of the firms to a given exogenous shock, defined as a sudden change of gross domestic product, is discussed. The longer tail in cumulative probability and skewed distribution of growth rate are observed for a high growth scenario.
”Quantitative agent-based firm dynamics simulation with parameters estimated by financial and transaction data analysis”
Y. Ikeda, W. Souma, H. Aoyama, H. Iyetomi, Y. Fujiwara, T. Kaizoji
Physica A: Statistical Mechanics and its Applications, 375, 2, 651-667, 2007/03
Firm dynamics on a transaction network is considered from the standpoint of econophysics, agent-based simulations, and game theory. In this model, interacting firms rationally invest in a production facility to maximize net present value. We estimate parameters used in the model through empirical analysis of financial and transaction data. We propose two different methods (analytical method and regression method) to obtain an interaction matrix of firms. On a subset of a real transaction network, we simulate firm's revenue, cost, and fixed asset, which is the accumulated investment for the production facility. The simulation reproduces the quantitative behavior of past revenues and costs within a standard error when we use the interaction matrix estimated by the regression method, in which only transaction pairs are taken into account. Furthermore, the simulation qualitatively reproduces past data of fixed assets.