%0 Journal Article
%T The Transition from Brownian Motion to Boom-and-Bust Dynamics in Financial and Economic Systems
%A Harbir Lamba
%J Quantitative Finance
%D 2012
%I arXiv
%X Quasi-equilibrium models for aggregate variables are widely-used throughout finance and economics. The validity of such models depends crucially upon assuming that the systems' participants behave both independently and in a Markovian fashion. We present a simplified market model to demonstrate that herding effects between agents can cause a transition to boom-and-bust dynamics at realistic parameter values. The model can also be viewed as a novel stochastic particle system with switching and reinjection.
%U http://arxiv.org/abs/1209.4629v1