Stability of money: phase transitions in an Ising economy

Stefan Bornholdt and Friedrich Wagner

Physica A: Statistical Mechanics and its Applications, 2002, vol. 316, issue 1, 453-468

Abstract: The stability of money value is an important requisite for a functioning economy, yet it critically depends on the actions of participants in the market themselves. Here we model the value of money as a dynamical variable that results from trading between agents. The basic trading scenario can be recast into an Ising-type spin model and is studied on the hierarchical network structure of a Cayley tree. We solve this model analytically and observe a phase transition between a one-state phase, always allowing for a stable money value, and a two-state phase, where an unstable (inflationary) phase occurs. The onset of inflation is discontinuous and follows a first-order phase transition. The stable phase provides a parameter region where money value is robust and can be stabilized without fine tuning.

Keywords: Econophysics; Dynamics of money; Spin model of markets; Ising model; Cayley tree; Phase transition (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:316:y:2002:i:1:p:453-468

DOI: 10.1016/S0378-4371(02)01218-9

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