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A model on the financial panic

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  • Kitamura, Toyoyuki

Abstract

The mechanism of the financial panic is clarified by the two band model in a simplified capitalist society from statistical mechanics. A financial panic occurs on an occasion of the supercooling process to avoid completing the financial (buy–sell) cycles under the circumstances: extremely high consumption causes enormous bubbles of buy–sell pairs of securities in financial markets, which form the configuration entropy (the Kauzmann entropy) and trigger a chain recession. As society cools down, the dynamical processes of financial panic are governed by universal features such as the Kauzmann entropy crisis and the drastic drop of the dynamical motions (the VTF law), which also cause further recession so that a chain recession occurs. And the financial markets eventually freeze.

Suggested Citation

  • Kitamura, Toyoyuki, 2010. "A model on the financial panic," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(13), pages 2586-2596.
    • Handle: RePEc:eee:phsmap:v:389:y:2010:i:13:p:2586-2596
    DOI: 10.1016/j.physa.2010.02.037
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    1. Ricardo, David, 1821. "On the Principles of Political Economy and Taxation," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 3, number ricardo1821.
    2. Veblen, Thorstein, 1904. "Theory of Business Enterprise," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number veblen1904.
    3. Bomberger, William A & Makinen, Gail E, 1983. "The Hungarian Hyperinflation and Stabilization of 1945-1946," Journal of Political Economy, University of Chicago Press, vol. 91(5), pages 801-824, October.
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    1. Ravi Kashyap, 2024. "The Democratization of Wealth Management: Hedged Mutual Fund Blockchain Protocol," Papers 2405.02302, arXiv.org, revised Jul 2024.
    2. Kashyap, Ravi, 2024. "The Democratization of Wealth Management: Hedged Mutual Fund Blockchain Protocol," Research in International Business and Finance, Elsevier, vol. 71(C).

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