New theory derived from classical physics predicts how economies respond to major disturbances

ScienceDaily | 4/15/2019 | Staff
echolea (Posted by) Level 3
The new method adds to current economic models in several ways.

"First, we can determine the resilience of an economy," says Peter Klimek, first author of the paper. Each country has different industries, and depends on various imports and exports. "We see all these interdependencies in newly available data sets. From these data we can calculate how susceptible a country and its different production sectors are to disturbances."

Scientists - Instance - Parts - Economy - Shock

The scientists see, for instance, which parts of an economy are particularly vulnerable to a shock, such as a trade war.

"We can further quantify how much a shock in one corner of the world affects the production of a given sector far across the globe," says co-author Stefan Thurner. Modeling responses to shocks helps answer questions like why it took economies so long to recover from the 2008 recession. "A shock does not evaporate," explains Peter Klimek. Just like a rock that is thrown into a still pond, a shock produces waves. "The shock waves will run through the whole system, following each of its interdependent connections." The researchers found that it typically takes six to ten years before all sectors of an economy have fully digested a shock.

Line - Progress - Method - Predictions - Authors

Another line of progress resulting from the new method is that testable predictions can be made. The authors took the input-output data of 56 industrial sectors in 43 OECD countries from the years 2000 to 2014. With this large dataset they tested the accuracy of different economic projections that were dealing with the aftermaths of 2008. "Our method clearly outperformed all standard...
(Excerpt) Read more at: ScienceDaily
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