Economic Fluctuations Based on Optimal Diffusion Index Model

Abstract

The diffusion index DI announced by Bank of Japan has strong correlation with the economic growth ΔG. We propose a new economic model for ΔG and DI in order to explain the economic fluctuations. This model is described by equations analogous to the optimal velocity model in traffic flow. We solve the equations numerically and found that ΔG and DI fluctuate for a few years and converge to a fixed point finally. The predicted values for two or three years show a good agreement with the observed data. We also discuss the mathematical structure of our model.