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New Essentials of Economic Theory I. Assumptions, Economic Space and Variables

Victor Olkhov

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops economic theory framework free from assumptions on market equilibrium, utility functions, rational expectations and etc. We describe macroeconomics as system of economic agents under action of n risks. Economic and financial variables of agents, their expectations and transactions between agents define macroeconomic variables. Agents variables depend on transactions between agents and transactions are performed under agents expectations. Agents expectations are formed by economic variables, transactions, expectations of other agents, by all factors that impact macroeconomic evolution. We describe evolution of macroeconomic variables, transactions and expectations by systems of economic partial differential equations. We develop asset pricing model as a result of equations on transactions and expectations and derive equations that describe price dynamics. To do this we use risk ratings of economic agents as their coordinates on economic space. We approximate description of economic and financial variables, transactions and expectations of numerous separate agents by description of variables, transactions and expectations as density functions on economic space. We take into account flows of economic variables, transactions and expectations induced by motion of separate agents on economic space due to change of agents risk ratings and describe macroeconomic impact of these economic flows. We apply our model to description of business cycles, describe models of wave propagation for disturbances of economic variables and transactions, model asset price fluctuations and argue hidden complexities of classical Black-Scholes-Merton option pricing.

Keywords: Economic Theory; Risk Ratings; Economic Space; Economic Flows; Density Functions (search for similar items in EconPapers)
JEL-codes: C02 E00 E30 E32 G0 G12 (search for similar items in EconPapers)
Date: 2019-03-30
New Economics Papers: this item is included in nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: New Essentials of Economic Theory I. Assumptions, Economic Space and Variables (2019) Downloads
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