Credit-Loans Non-Local Transactions and Surface-Like Waves

This paper describes waves of Credit-Loans macro financial transactions on economic space. We use agent's risk ratings as their coordinates and describe evolution of macro financial variables by transactions between agents. Aggregations of agent's financial variables with risk coordinates x on economic space define macro financial variables as function of x. Aggregations of financial transactions between agents at point x and y determine functions of two variables (x,y) on economic space. As example we study Credit transactions provided from agents at point x to agents at point y and thus amount of Loans received by agents at point y from agents at point x at moment t during time term dt. We model evolution of macro transactions by hydrodynamic-like equations. Agents fill macro financial domain on economic space that is bounded by minimum risk ratings of most secure and maximum risk ratings of most risky agents. Economic and financial shocks can disturb steady borders of macro domain and cause perturbations of financial transactions. Such disturbances can generate waves that can propagate along risk borders alike to surface waves in fluids. As example, we describe simple model interactions between two financial transactions by hydrodynamic like equations in a closed form. We introduce notions of “financial accelerations” and their potentials that establish steady state distributions of financial transactions on economic space. For this model in linear approximation we describe surface-like waves and show that perturbations induced by financial surface-like waves can exponentially grow up inside macro domain and induce financial instabilities in a low risk area. Description of possible steady state distributions of financial transactions and surface-like waves on economic space might be important for macro-finance modeling and policy-making