Empiricalandtheoreticalevidenceofeconomicchaos.docVIP

System Dynamics Review Evidence of Economic Chaos PAGE36 Empirical and theoretical evidence of economic chaos Ping Chen* September 7, 1987 (revised October 29, 1987) System Dynamics Review Vol. 4, No.1-2, 1988 Ping Chen is a Research Fellow at the I. Prigogine Center for Studies in Statistical Mechanics and Research Associate at the IC2 Institute, University of Texas at Austin. He received a Ph.D. from that University through work on nonlinear dynamics and business cycle theory. Address : Ping Chen, I. Prigogine Center for Studies in Statistical Mechanics, University of Texas, Austin, TX 78712. * The author is greatly indebted to Professor I. Prigogine for inspiring the research of economic chaos and to Professor W. A. Barnett for suggesting the test of monetary aggregates. The author is grateful to Professors. B. L. Hao, H. L. Swinney, G. Nicolis, W. W. Rostow, and P. Allen, and to Drs. A. Arneodo, Y. Yamaguchi, A. Wolf, A. Brandstater, and W. M. Zheng for their valuable discussions. He also appreciates the stimulating comments from Professors J. D. Sterman, E. Mosekilde, P. A. Samuelson, and R. Solow. This research is supported by the IC2 Institute at Austin. Abstract Empirical and theoretical investigations of chaotic phenomena in macroeconomic systems are presented. Basic issues and techniques in testing economic aggregate movements are discussed. Evidence of low dimensional strange attractors is found in several empirical monetary aggregates. A continuous time deterministic model with delayed feedback is proposed to describe the monetary growth. Phase transition from periodic to chaotic motion occurs in the model. The model offers an explanation of the multiperiodicity and irregularity in business cycles and of the low-dimensionality of chaotic monetary attractors. Implications in monetary control policy and a new approach to forecasting business cycles are suggested. In recent y