A new paradigm for modelling hysteresis in macroeconomic flows

Abstract

Macroeconomic processes are often conceptualised as “flows”, and analogies are drawn with physical flow processes. Most economic processes, however, carry inherent irreversibility, a fact which these analogies neglect. A better metaphor for economic flows is suggested, involving flows through porous media. This new conceptual framework incorporates important features such as irreversibility and heterostasis through the use of hysteresis. A simple example model is derived, which may be used to derive qualitative results.