Self-organization and multifractality in inflation and price systems

Abstract

The economy is an open system: it is formed by a large number of economic agents and the environment. Individuals react to external stimuli (from the environment and from other individuals) and internal stimuli in a self-organized way [1]. Self-organized criticality (SOC) [2, 3] supposes that open systems with elements that interact with each other, are organized in the environment of a “stationary” critical state, with no other scales other than those imposed by the size of the system. These critical states are characterized by temporal and spatial power laws. One type of economic phenomenon that could be characterized in this manner is price variations in different markets. These price variations reflect on inflation, which is measured through price indexes (CPI indexes), which can inherit many of the characteristics of the underlying processes. One of the ways in which these characteristics can manifest is through a long memory process with unbounded shocks. On the one hand, there is evidence for different economies that states that the distribution of price variation at the product level is skewed.