Application of Method of Systems Potential in Economics: Hysteresis Loops and Business Cycle; The Great Depression of 1930's as Mathematical Catastrophe of Economic System

Abstract: It is proposed to consider the business cycle as hysteresis loop with fluctuating limiting points. Concept is based on the Method of System Potential, (Proceedings of International System Dynamics Conference 2003, No.56) which describes dynamics of spontaniously arising Complex Systems as the process of realization of some its inner propertiy of such Systems, so-called the 'Potential of a System'. Quasi-periodical dynamics of the 'index of efficiency' of such systems outcome from 'evolution equations' of the Method. Dynamics of Economic System is analized on the basis of this general system approach. Quasi-periodical cycle consists of two phases of gradual growth and two jumps – upward and down ward. Every such jump means mathematical catastrophe. The surface of this catastrophe is analyzed. It is proposed consider cyclical evolution of a System as a process of its qualitative refreshment. This method as applied to Economic System allows explaining some properties of the typical business cycle established by W. C. Mitchell (NBER) with respect to duration of different phases of the cycle. The Method as applied for quantitative analysis of U.S. Economic dynamics in 1922-1949 gives advance understanding of Great Depression of 1930’s.

Keywords: business cycle; catastrophe theory; economic potential; Great Depression (search for similar items in EconPapers)
JEL-codes: N (search for similar items in EconPapers)
Date: Written 2005-02-05
Note: Type of Document - pdf; pages: 35. pdf-format

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