Monetary economics from econophysics perspective

This is an invited article for the Discussion and Debate special issue of The European Physical Journal Special Topics on the subject "Can Economics Be a Physical Science?" The first part of the paper traces the personal path of the author from theoretical physics to economics. It briefly summarizes applications of statistical physics to monetary transactions in an ensemble of economic agents. It shows how a highly unequal probability distribution of money emerges due to irreversible increase of entropy in the system. The second part examines deep conceptual and controversial issues and fallacies in monetary economics from econophysics perspective. These issues include the nature of money, conservation (or not) of money, distinctions between money vs. wealth and money vs. debt, creation of money by the state and debt by the banks, the origins of monetary crises and capitalist profit. Presentation uses plain language understandable to laypeople and may be of interest to both specialists and general public.Comment: 23 pages, 1 figur

Global-scale modeling of nitrogen balances at the soil surface

This paper provides global terrestrial surface balances of nitrogen (N) at a resolution of 0.5 by 0.5 degree for the years 1961, 1995 and 2050 as simulated by the model WaterGAP-N. The terms livestock N excretion (Nanm), synthetic N fertilizer (Nfert), atmospheric N deposition (Ndep) and biological N fixation (Nfix) are considered as input while N export by plant uptake (Nexp) and ammonia volatilization (Nvol) are taken into account as output terms. The different terms in the balance are compared to results of other global models and uncertainties are described. Total global surface N surplus increased from 161 Tg N yr-1 in 1961 to 230 Tg N yr-1 in 1995. Using assumptions for the scenario A1B of the Special Report on Emission Scenarios (SRES) of the International Panel on Climate Change (IPCC) as quantified by the IMAGE model, total global surface N surplus is estimated to be 229 Tg N yr-1 in 2050. However, the implementation of these scenario assumptions leads to negative surface balances in many agricultural areas on the globe, which indicates that the assumptions about N fertilizer use and crop production changes are not consistent. Recommendations are made on how to change the assumptions about N fertilizer use to receive a more consistent scenario, which would lead to higher N surpluses in 2050 as compared to 1995

The real time mass evaluation system as a tool for detection of undeclared cascade operation at GCEPs

Given the flexibility of current cascade designs a real time mass monitoring system is preferred for safeguarding Gas Centrifuge Enrichment Plants. However, if such a system is to be installed in a GCEP it must not impinge on plant operation or be intrusive. Since load cells are already part of the operational process and located outside the cascade hall their exploitation for safeguards purposes is an obvious development. The paper describes, through dynamic simulations, how transients would be observed in real-time mass balances when undeclared cascade operation takes place in a declared facility

Continuum thermodynamics of chemically reacting fluid mixtures

We consider viscous, heat conducting mixtures of molecularly miscible chemical species forming a fluid in which the constituents can undergo chemical reactions. Assuming a common temperature for all components, we derive a closed system of partial mass and partial momentum balances plus a mixture balance of internal energy. This is achieved by careful exploitation of the entropy principle and requires appropriate definitions of absolute temperature and chemical potentials, based on an adequate definition of thermal energy excluding diffusive contributions. The resulting interaction forces split into a thermo-mechanical and a chemical part, where the former turns out to be symmetric in case of binary interactions. For chemically reacting systems and as a new result, the chemical interaction force is a contribution being non-symmetric outside of chemical equilibrium. The theory also provides a rigorous derivation of the so-called generalized thermodynamic driving forces, avoiding the use of approximate solutions to the Boltzmann equations. Moreover, using an appropriately extended version of the entropy principle and introducing cross-effects already before closure as entropy invariant couplings between principal dissipative mechanisms, the Onsager symmetry relations become a strict consequence. With a classification of the factors in the binary products of the entropy production according to their parity--instead of the classical partition into so-called fluxes and driving forces--the apparent anti-symmetry of certain couplings is thereby also revealed. If the diffusion velocities are small compared to the speed of sound, the Maxwell-Stefan equations follow in the case without chemistry, thereby neglecting wave phenomena in the diffusive motion. This results in a reduced model with only mass being balanced individually. In the reactive case ..

Precautionary balances and the velocity of circulation of money

Inflation, as a tax on money, gives buyers an incentive to reduce their money balances. Sellers are aware of this incentive and try to attract buyers by announcing price offers that induce buyers to spend a larger fraction of their money. We examine the effect of inflation on equilibrium price offers and associated trades in a competitive search environment where buyers experience preference shocks after they are matched with a seller. With full information,equilibrium price offers consist of a flat fee applied equally to all buyers independently of the quantities they purchase. If buyers'preferences are private information, sellers must charge more to buyers who purchase larger quantities due to incentive compatibility restrictions. In this case, equilibrium price offers consist of a non-linear price schedule. However, as inflation rises, price schedules become relatively flat. This implies that buyers with a low desire to consume purchase higher quantities and spend their cash more rapidly. Buyers with a high desire to consume purchase lower quantities because, as their money balances fall, they become liquidity constrained. This is in contrast with the full information benchmark where inflation reduces the quantities purchased by all buyers. The equilibrium is efficient at the Friedman rule and inflation reduces welfare both with full and private information

Perpetual youth and endogenous labour supply: a problem and a possible solution

In the “perpetual youth” overlapping-generations model of Blanchard and Yaari, if leisure is a “normal” good then some agents will have negative labour supply. We suggest a solution to this problem by using a modified version of Greenwood, Hercowitz and Huffman’s utility function. The modification incorporates real money balances, so that the model may be used to analyse monetary as well as fiscal policy. In a Walrasian version of the economy, we show that increased government debt and increased government spending raise the interest rate and lower output, while an open-market operation to increase the money supply lowers the interest rate and raises output. JEL Classification: D91, E63Blanchard-Yaari overlapping generations, endogenous labour supply

Chaotic Interest Rate Rules: Expanded Version

A growing empirical and theoretical literature argues in favor of specifying monetary policy in the form of Taylor-type interest rate feedback rules. That is, rules whereby the nominal interest rate is set as an increasing function of inflation with a slope greater than one around an intended inflation target. This paper shows that such rules can easily lead to chaotic dynamics. The result is obtained for feedback rules that depend on contemporaneous or expected future inflation. The existence of chaotic dynamics is established analytically and numerically in the context of calibrated economies. The battery of fiscal policies that has recently been advocated for avoiding global indeterminacy induced by Taylor-type interest-rate rules (such as liquidity traps) are shown to be unlikely to provide a remedy for the complex dynamics characterized in this paper.

Universal patterns of inequality

Probability distributions of money, income, and energy consumption per capita are studied for ensembles of economic agents. The principle of entropy maximization for partitioning of a limited resource gives exponential distributions for the investigated variables. A non-equilibrium difference of money temperatures between different systems generates net fluxes of money and population. To describe income distribution, a stochastic process with additive and multiplicative components is introduced. The resultant distribution interpolates between exponential at the low end and power law at the high end, in agreement with the empirical data for USA. We show that the increase of income inequality in USA originates primarily from the increase of the income fraction going to the upper tail, which now exceeds 20% of the total income. Analyzing the data from the World Resources Institute, we find that the distribution of energy consumption per capita around the world can be approximately described by the exponential function. Comparing the data for 1990, 2000, and 2005, we discuss the effect of globalization on the inequality of energy consumption.Comment: Accepted to New Journal of Physics. 27 pages (IOP preprint style), 8 figures. V.2: Updated figs. 3 and 8, many references added, all text edited. V.3: Minor changes, last 3 references added. V.4: Minor stylistic changes and reference updates in proof