Analyzing The Formation Mechanism Of The Fictitious Economy Systemic Risk

The Global Economy Crisis, which was triggered by the U.S. Subprime Mortgage Crisis, is facing the most serious recession since the Great Depression of the1930s. In-depth looking at the1997Asian Financial Crisis and the U.S. Subprime Mortgage Crisis and many other historical cases, we find that the root of volatility of macroeconomics lies in no longer the real economy system, but in the asset markets,and the most important performance is the sharp fluctuations in asset prices. Grasping the key point—he asset price volatility, the full text deeply studies the formation mechanism of the fictitious economy systemic risk,by setting the model from a macro-micro perspectives, and integratiing the theoretical analysis with historical cases.Firstly, after a detailed review from all previous theories and studies in the world about the fictitious capital, fictitious economy as well as the systemic risk,the text defines the fictitious economy systemic risk. With the existing research results, we find that the asset price fluctuation plays very important role in the formation mechanism of the fictitious economy systemic risk, whether it is from a macro perspective or from the micro perspective. Following this,the author gives a detailed review on the formation mechanism of the fictitious economy systemic risk.Secondly, basing on the macro-perspective and by gradually expanding it, the author sets up the theoretical models—wo sector model which is built around the manufacturer sector and the household sector, and three sector model which is built around the manufacturer sector, the household sector and the fictitious economy, and four sector model which is built around the manufacturer sector, the household sector, the fictitious economy and the Government, as well as five sector model which is built around the manufacturer sector, the household sector, the fictitious economy, the Government manufacturers and foreign sector. In the model building process, the author discusses step-by-step the monetary income and monetary expenditure of all departments.Starting from the Cambridge Growth Formula on the monetary; value measure and through making a unified macroeconomic framework between the fictitious economy and the real economy,the author deduces a general equilibrium expression for the manufacturer sector, the household sector, the fictitious economy, the Government manufacturers and foreign sector and proposes the theoretical and macro formation mechanism of the asset price fluctuation and the fictitious economy systemic risk. The macro perspective discussion mainly includes the three cases,they are,the given asset prices and exogenous variables,and the varied asset prices but the given exogenous, and the varied asset prices and exogenous.(1)Under the conditions in which the scale of the fictitious economy greatly overtakes the real economy, the macro-economic has only one equilibrium and steady-state only when the natural rate of interest on capital and return on fictitious capital and Money Market Interest Rates are equal at the same time. Based on the fact of modern economy fictionization, it is a new development for Wicksell’s macroeconomic equilibrium and steady-state.(2)When the model exogenous variables are given, and with the macroeconomic profit margins in a rising or falling stage, fluctuations in the asset prices are caused by the facts and expectations of the profit margin changes, which make the formation of the fictitious economy systemic risks. The conclusion is that the positive feedback mechanism between the manufacturers’ asset prices growth and manufacturers’ profits, manufacturers’ assets value and manufacturers’ loan demand, as well as positive correlation between bank credit capacity and the bank assets value make asset prices rising continuously when the economic profit margin is in the upswing phase, contributing to the continued accumulation of the fictitious economy systemic risk, and that the assets price falls without continuity,which enables the fictitious economy systemic risk to be released by stage. In the decreased Stage in the economic margin, the rise in asset prices is unsustainable and systemic risk may outbreak at any time, leading to the outbreak of the systemic risk when asset prices fall more than a certain level.(3)The formation of the fictitious economy systemic risks was impacted by the exogenous variables when the model exogenous variables aren’t given.There is a reverse correlation between the asset value of bank and the profits of band and the reserve.During asset price in the inflation stage, raising the reserve will help to curb the inflation in asset prices, and reducing the reserve will promote the inflation in asset prices. In the stage of falling asset prices, raising the reserve will accelerate the asset prices inflation of the bank;and reducing the reserve will help alleviate the asset prices fall of the bank. Theoretically, there is a negative relationship between the loan interest rates and the volatility of asset prices.Increase the loan interest rates, and the asset prices will fall down, while reduce the loan interest rates, and the asset prices will inflate. The volatility of the deposit rates is no significant impact on the fictitious economy systemic risks. The assets mortgage rate exerts very obvious impact on the virtual economy systemic risks and raising assets mortgage rate can directly inhibit the rise in asset prices, and reducing asset mortgage rate is able to directly and effectively alleviate the decline in asset prices.Raising the currency exchange rate lead to the rise of the domestic asset prices and the currency exchange rate and the fictitious economy systemic risk accumulation, and reducing the currency exchange rate leads to the country asset prices’falling and increases the fictitious economy systemic risk. The tax, the government transfer payment and government assistance will also have an impact on the formation of the fictitious economy systemic risk.Although the outbreak of the fictitious economy systemic risk is manifested in a macroscopic phenomenon, the accumulation of the fictitious economy systemic risk is not only because of the macro—level but also micro-situation, psychological and behavioral characteristics of the main body of the fictitious economy system which are the fundamental and important factors. As the most critical elements of the fictitious economy system—he investor, is the core of the various elements of the various asset markets. Starting further from the micro perspective of Behavioral Finance,the author explains the formation of fictitious asset prices and that the investor behavior change leads to the fictitious asset price fluctuations,which results in the formation mechanism of the fictitious economy systemic risks.Finally, as the experience for testing the formation mechanism of the fictitious economy systemic risks, this article reviews the history of France Mississippi stock market, the British South Sea Bubble, great depression in the1930s, the Asian financial crisis and the global economic recession triggered by the U.S. Subprime Mortgage crisis and other major systemic crisis of the fictitious economy events, and strives to achieve the Unity of history and logics and the combination of theory and practice.