Managing macro-economic parameters can help avert economic collapses: Study

Managing macro-economic parameters can help steer an economy around irreversible changes in its complex dynamics and avert potential economic disasters, a new study has revealed.

The study conducted by Michael Harre and colleagues at the Complex Systems Group at the University of Sydney, Australia states that the by applying statistical mechanics methods to economic game theory, it is possible to describe the strategic interactions between businesses which are influenced by their own incentives and incentives from third party.

According to a previous study by changing the macro economic parameter like the tax rates the system will fluctuate a little, however, the new study found that optimization can produce a tipping point where a change in the tax regime, for example, will cause the whole economy to suddenly collapse.

The study found that a steady state can be achieved where the contributions of various businesses to the economy can be maximized in terms of financial return.

It was found that even if the economy was leading to a tipping point small perturbations can move the economy around the tipping point thereby averting the collapse.

The results showed that the ability to exert control on economies depends on having sufficient control of the system parameters, and knowing where the economy is relative to these tipping points provided by recent measuring techniques.