From: John Conover <john@email.johncon.com>
Subject: Re: General Equilibrium Model
Date: 29 Dec 1998 01:30:07 GMT
Matt Kennel writes:
> G o e t z K l u g e <71520.3515@CompuServe.COM> wrote:
> :
> :
> :Markets at equilibrium and dynamic changes within these
> :markets are no contradiction.
> :
> :Roughly speaking, a system is in equilibrium with regard to
> :a variable, as long as the average of this variable does not
> :change.
>
> No. That's just an assertion of stationarity of some mean.
>
> "equilibrium" has a precise meaning in thermodynamics:
>
> The implication is that there is a separation of timescales so that
> some fast "micro" process relaxes much quicker than the timescales of
> changes in macroscopic processes.
>
If something like an equity's value over time is considered an
equilibrium value, and can be modeled adequately as a random walk, (a
la Black-Scholes,) then there is a paradox. One would expect the range
of the equity's value, (ie., maximum - minimum,) to increase with the
square root of time, (which, empirically, seems to be the case,) then,
in some sense, the equilibrium value diverges over time. In classical
thermodynamics, it converges. Depending on one's POV, this would seem
to support Matt's premiss.
John
--
John Conover, john@email.johncon.com, http://www.johncon.com/