The mechanism of double exponential growth in hyper-inflation

Details The mechanism of double exponential growth in hyper-inflation The mechanism of double exponential growth in hyper-inflation

2001-12-24

arxiv.org/abs/cond-mat/0112441v1

Physica A 308 (2002) 411

Physics

Condensed Matter

Statistical Mechanics

9 pages, 5 figures and 2 tables, submitted to Physica A

Scientific paper

10.1016/S0378-4371(02)00598-8

Analyzing historical data of price indices we find an extraordinary growth phenomenon in several examples of hyper-inflation in which price changes are approximated nicely by double-exponential functions of time. In order to explain such behavior we introduce the general coarse-graining technique in physics, the Monte Carlo renormalization group method, to the price dynamics. Starting from a microscopic stochastic equation describing dealers' actions in open markets we obtain a macroscopic noiseless equation of price consistent with the observation. The effect of auto-catalytic shortening of characteristic time caused by mob psychology is shown to be responsible for the double-exponential behavior.

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