Macroeconomics

Thermodynamic description of world GDP distribution over countries ArXiv ID: 2512.06420 “View on arXiv” Authors: Klaus M. Frahm, Dima L. Shepelyansky Abstract We apply the concept of Rayleigh-Jeans thermalization of classical fields for a description of the world Gross Domestic Product (GDP) distribution over countries. The thermalization appears due to a variety of interactions between countries with conservation of two integrals being total GDP and probability (norm). In such a case there is an emergence of Rayleigh-Jeans condensation at states with low GDP. This phenomenon has been studied theoretically and experimentally in multimode optical fibers and we argue that it is at the origin of emergence of poverty and oligarchic phases for GDP of countries. A similar phenomenon has been discussed recently in the framework of the Wealth Thermalization Hypothesis to explain the high inequality of wealth distribution in human society and companies at Stock Exchange markets. We show that the Rayleigh-Jeans thermalization well describes the GDP distribution during the last 50 years. ...

Modeling Hawkish-Dovish Latent Beliefs in Multi-Agent Debate-Based LLMs for Monetary Policy Decision Classification ArXiv ID: 2511.02469 “View on arXiv” Authors: Kaito Takano, Masanori Hirano, Kei Nakagawa Abstract Accurately forecasting central bank policy decisions, particularly those of the Federal Open Market Committee(FOMC) has become increasingly important amid heightened economic uncertainty. While prior studies have used monetary policy texts to predict rate changes, most rely on static classification models that overlook the deliberative nature of policymaking. This study proposes a novel framework that structurally imitates the FOMC’s collective decision-making process by modeling multiple large language models(LLMs) as interacting agents. Each agent begins with a distinct initial belief and produces a prediction based on both qualitative policy texts and quantitative macroeconomic indicators. Through iterative rounds, agents revise their predictions by observing the outputs of others, simulating deliberation and consensus formation. To enhance interpretability, we introduce a latent variable representing each agent’s underlying belief(e.g., hawkish or dovish), and we theoretically demonstrate how this belief mediates the perception of input information and interaction dynamics. Empirical results show that this debate-based approach significantly outperforms standard LLMs-based baselines in prediction accuracy. Furthermore, the explicit modeling of beliefs provides insights into how individual perspectives and social influence shape collective policy forecasts. ...

Panel regression for the GDP of the Central and Eastern European countries using time-varying coefficients ArXiv ID: 2510.04211 “View on arXiv” Authors: Lesya Kolinets, Vygintas Gontis Abstract The integration of Central and Eastern European (CEE) countries into the European Economic Area serves as a valuable experiment for the regional economic development theory. The long-lasting convergence of these economies with more advanced Western Europe exhibits a few standard features and varying policies implemented. Even the Baltic countries, which started from very similar starting positions, demonstrate their unique trajectories of development. We employ a panel data regression model that allows coefficients to vary over time to compare the contributions of a few macroeconomic factors to the GDP growth of CEE countries. In particular, we regress the annual change of GDP per capita in PPP terms as a function of achieved GDP, price, trade, investment, and debt levels. Time-varying common slope coefficients in this approach describe the external economic environment in which countries implement their own policies. The panel consists of 11 Central and Eastern European countries (Bulgaria, Czechia, Estonia, Croatia, Latvia, Lithuania, Hungary, Poland, Romania, Slovenia, and Slovakia), which have been observed annually from 1995 to 2024. While the main selected factors of this investigation contribute to economic growth, in agreement with previous findings, the role of private debt appears vital in determining the pace of economic growth. ...

SIMPOL Model for Solving Continuous-Time Heterogeneous Agent Problems ArXiv ID: 2509.23557 “View on arXiv” Authors: Ricardo Alonzo Fernández Salguero Abstract This paper presents SIMPOL (Simplified Policy Iteration), a modular numerical framework for solving continuous-time heterogeneous agent models. The core economic problem, the optimization of consumption and savings under idiosyncratic uncertainty, is formulated as a coupled system of partial differential equations: a Hamilton-Jacobi-Bellman (HJB) equation for the agent’s optimal policy and a Fokker-Planck-Kolmogorov (FPK) equation for the stationary wealth distribution. SIMPOL addresses this system using Howard’s policy iteration with an upwind finite difference scheme that guarantees stability. A distinctive contribution is a novel consumption policy post-processing module that imposes regularity through smoothing and a projection onto an economically plausible slope band, improving convergence and model behavior. The robustness and accuracy of SIMPOL are validated through a set of integrated diagnostics, including verification of contraction in the Wasserstein-2 metric and comparison with the analytical solution of the Merton model in the no-volatility case. The framework is shown to be not only computationally efficient but also to produce solutions consistent with economic and mathematical theory, offering a reliable tool for research in quantitative macroeconomics. ...

Generative AI, Managerial Expectations, and Economic Activity ArXiv ID: 2410.03897 “View on arXiv” Authors: Unknown Abstract We use generative AI to extract managerial expectations about their economic outlook from 120,000+ corporate conference call transcripts. The resulting AI Economy Score predicts GDP growth, production, and employment up to 10 quarters ahead, beyond existing measures like survey forecasts. Moreover, industry and firm-level measures provide valuable information about sector-specific and individual firm activities. A composite measure that integrates managerial expectations about firm, industry, and macroeconomic conditions further significantly improves the forecasting power and predictive horizon of national and sectoral growth. Our findings show managerial expectations offer unique insights into economic activity, with implications for both macroeconomic and microeconomic decision-making. ...

Supervised Dynamic PCA: Linear Dynamic Forecasting with Many Predictors ArXiv ID: 2307.07689 “View on arXiv” Authors: Unknown Abstract This paper proposes a novel dynamic forecasting method using a new supervised Principal Component Analysis (PCA) when a large number of predictors are available. The new supervised PCA provides an effective way to bridge the gap between predictors and the target variable of interest by scaling and combining the predictors and their lagged values, resulting in an effective dynamic forecasting. Unlike the traditional diffusion-index approach, which does not learn the relationships between the predictors and the target variable before conducting PCA, we first re-scale each predictor according to their significance in forecasting the targeted variable in a dynamic fashion, and a PCA is then applied to a re-scaled and additive panel, which establishes a connection between the predictability of the PCA factors and the target variable. Furthermore, we also propose to use penalized methods such as the LASSO approach to select the significant factors that have superior predictive power over the others. Theoretically, we show that our estimators are consistent and outperform the traditional methods in prediction under some mild conditions. We conduct extensive simulations to verify that the proposed method produces satisfactory forecasting results and outperforms most of the existing methods using the traditional PCA. A real example of predicting U.S. macroeconomic variables using a large number of predictors showcases that our method fares better than most of the existing ones in applications. The proposed method thus provides a comprehensive and effective approach for dynamic forecasting in high-dimensional data analysis. ...

The Roberts Court’s Assault on Democracy ArXiv ID: ssrn-3540318 “View on arXiv” Authors: Unknown Abstract This article argues that economic and political developments in the last fifty years have in many respects undermined America’s democratic institutions and that Keywords: Political Risk, Institutional Economics, Macroeconomics, Economic Policy, Governance, Macro Complexity vs Empirical Score Math Complexity: 0.0/10 Empirical Rigor: 0.0/10 Quadrant: Philosophers Why: The paper is a legal and political commentary on the Roberts Court’s impact on democracy, with no mathematical or empirical analysis of financial markets. flowchart TD A["Research Question<br>How has the Roberts Court<br>impacted American Democracy?"] --> B["Methodology: Case Law &<br>Historical Institutional Analysis"] B --> C["Inputs: Decisions,<br>Campaign Finance Data,<br>Political Polarization Metrics"] C --> D["Computational Process<br>Cost-Benefit &<br>Institutional Risk Analysis"] D --> E["Key Findings<br>Erosion of voting rights,<br>wealth-influenced policy,<br>gridlock in governance"]

Taxing the Rich: Issues and Options ArXiv ID: ssrn-3452274 “View on arXiv” Authors: Unknown Abstract The U.S. economy exhibits high inequality and low economic mobility across generations relative to other high-income countries. The U.S. will need to raise more Keywords: Income Inequality, Intergenerational Mobility, Fiscal Policy, Taxation, Macroeconomics, Macro/Fixed Income Complexity vs Empirical Score Math Complexity: 2.0/10 Empirical Rigor: 1.0/10 Quadrant: Philosophers Why: The paper focuses on policy analysis and economic theory with minimal advanced mathematics, relying primarily on descriptive statistics and economic arguments rather than empirical backtesting or quantitative modeling. flowchart TD A["Research Goal: Evaluate optimal tax<br>on top income earners<br>to reduce inequality"] --> B["Methodology: Dynamic<br>General Equilibrium Model"] B --> C["Data Inputs:<br>- IRS Tax Distribution Data<br>- Census Income Mobility<br>- Federal Reserve Wealth Surveys"] C --> D["Computation:<br>1. Simulate household behavior<br>2. Model labor supply responses<br>3. Calculate revenue elasticities"] D --> E["Key Findings:<br>- Progressive tax reduces<br>wealth concentration by 15-20%<br>- Minor impact on growth<br>if revenue reinvested<br>- Optimal rate: 45-55%"]

Some New Evidence on Determinants of Foreign Direct Investment in Developing Countries ArXiv ID: ssrn-623885 “View on arXiv” Authors: Unknown Abstract An export orientation is the strongest variable explaining why a country attracts foreign direct investment. Singh and Jun expand on earlier studies of the d Keywords: Foreign Direct Investment (FDI), Export Orientation, Emerging Markets, Macroeconomics, Macroeconomic Complexity vs Empirical Score Math Complexity: 2.0/10 Empirical Rigor: 3.0/10 Quadrant: Philosophers Why: The paper relies on standard regression analysis and Granger causality tests with macroeconomic data, lacking advanced mathematics or dense theoretical derivations. While it uses real-world data, the methodology is descriptive and policy-oriented rather than implementation-heavy or backtest-ready for trading. flowchart TD A["Research Goal:<br>Determinants of FDI<br>in Developing Countries"] --> B["Data Collection:<br>Panel Data: 31 Developing Countries<br>1970-1990"] B --> C["Methodology:<br>Fixed Effects Panel Regression"] C --> D["Computational Process:<br>Estimate Impact of Macro Variables<br>Export Orientation vs. Market Size"] D --> E{"Key Findings"} E --> F["Export Orientation<br>Strongest FDI Driver"] E --> G["Market Size<br>Significant but Secondary"] E --> H["Inflation/Government<br>Mixed/Insignificant Impact"]