Faculty of Mathematics
Collaborative Research Centre 701
Spectral Structures and Topological Methods in Mathematics

# Monday, June 19, 2017 - 16:15 in H6

## Tipping points and crises: from statistical physics to macroeconomic modelling

A talk in the 'BGTS-Kolloquium' series by
Jean-Philippe Bouchaud from École polytechnique
 Abstract: Using the methodology of statistical physics, which characterizes a model through its phase diagram", we explore the possible types of phenomena that agent-based" macroeconomic models with interactions, frictions and heterogeneities can reproduce. Through this looking glass, we will discuss three stylized models (interacting firms networks, agent based models of firms and households and dynamical trust networks). In each case one finds generic phase transitions (or tipping points) between a good economy" state where unemployment/volatility are low and confidence is high, and a bad economy" state where unemployment/volatility are high and confidence is low. If the parameters are such that the system is close to such transitions, any small fluctuation may be amplified, leading to a large level of endogenous volatility. This can cause the monetary policy itself to trigger instabilities and be counter-productive. We identify several theoretical scenarios for synchronization and instabilities in large economies that can generate aggregate volatility and acute crises without any identifiable idiosyncratic shocks. This suggests an interesting explanation for the unexpected outbursts of endogenous economic or financial crises, also known as the small shocks, large business cycles" puzzle.