Reconstructing Macroeconomics, A Perspective from Statistical Physics and Combinatorial Stochastic Processes: Book Review

Abstract

Professors Aoki and Yoshikawa adopted a variety of concepts from statistical physics and combinatorial stochastic processes to various problems in economics (such as labor markets, real growth, consumption, unemployment, financial market, productivity difference, etc.). In order to analyze these phenomena, they depart from the standard methods of model construction and analysis in mainstream economics and use methods that generally fall into two broad categories. One deals with stochastic dynamics, and the other with the formation of clusters and random combinatorial analysis.

The authors build their new macroeconomics on the observation that the huge number of heterogeneous agents act stochastically different based on individual insights, tastes, goals, etc. In this approach the properties of economic systems are described by macroscopic dynamical equations of motion that are nonlinear partial differential equations, such as backward and forward Kolmogorov equations (known as a Chapman-Kolmogorov equation and Fokker-Planck equations).