Advanced Economic DynamicsPing Chen

Issues, Methods, and

School of Thoughts

实事求是，具体分析 多层次，多维度，历史，比较，动态，和演化的分析 – 从复杂到简要

历史线索 案例实证的收集，归纳，分类 寻找综述文献 -理清前人争论的要点，思路 研究具体机制，模型 寻找经验证据或反例

不怯上问 – 敢于质疑权威和流行的观点 不耻下问 – 虚心求教专家和平民的经验

四大课题，突破在望

Nonlinear DD-SS Curve – Multiple Equilibrium and Endogenous Instability

Stochastic Models of Persistent Cycles and Persistent Fluctuations

Nonlinear Deterministic Model under External Shocks

Interruptive Technology and Market Extent

四大难题，有路可寻

Keynes and Neo-Classical SynthesisMarginal and Non-Marginal PricingCredit Expansion and Financial CrisisEquilibrium and Non-equilibrium

Measurement of Economic Stock and Flow

先学可探，后学可成愿与同学志士，共同创建一个比新古典经济学更一般更实际的数理经济学体系：

时间序列的非稳态非线性分析企业动态行为的宏观环境技术竞争的产业兴衰理论金融中介的新陈代谢模型宏观系统的热力学与统计力学经济物理学演化动力学

Fundamental Issues in History

Adam Smith: Division of LaborWealth is created by increasing division

of labor.Dilemma: Invisible hand vs. market

extentPrice and Value: Labor Cost

Price Deviations from Value:Cost vs. Psychological Choice

Marx: surplus value created by labor

Marginal revolutionThe problem of supply curve under

increasing return to scale

Nature of Business Cycles

Marx: Explosive oscillation in market economy

Austrian: intrinsic credit cycles driven by central bank

Schumpeter: Creative destruction and biological clock

Frisch: Noise-driven damped oscillator

Keynesian revolution and neo-classical compromise

The challenge of the Great Depression Austrian: credit cycle and banking crisis Keynes: animal spirits and government

interference Neo-classical syntheses: IS-LM curve – a big

retreat from Keynesian general theory Friedman: monetary policy

Lucas Counter-Revolution:From Capital Market to Labor Market

Friedman (monetarist): Natural rate of unemployment

Becker: Intertemporal substitutionMuth: Rational expectationsLucas (new classical): Lucas critique of

control theory and microfoundations under rational expectations

New Keynesian defense: labor rigidity

Supply Side

Real business cycle schoolThe HP trend and cyclesWelfare state and tax policy

Decent voice

Fundamental Keynesian and post-Keynesian: financial instability (Minsky)

Austrian: endogenous cycle and evolutionary approach of political economics

Methodological Progress

Bounded rationality (Simon) and business psychology (Tversky and Kaneman)

Mandelbrot: Levy distribution and fractal Brownian motion

Experimental economics and rule of game (V. Smith)

Information asymmetry Increasing returns (Krugman) and path-

dependence (Arthur)

From Division of Labor to Evolutionary Biology

Needham’s question and Prigogine’s thermodynamics of evolution (1972)

Division of labor and economy of scaleTheoretical biology: stability vs.

complexity (May, 1973)Cultural factor in specie competition:

race between individualism & collectivism (1987)

From Economic Chaos to Evolutionary Economics

First evidence of economic chaos from monetary data (Chen, 1985)

Tinbergen, Simon, Samuelson, Rostow, and Solow

Debate with econometricians: noise (Brock) vs. chaos (Chen)

Detrending and the Copernicus problem (1993), Zarnowitz and Kydland

Non-stationary time-frequency analysis (1994)

Understanding Economic Instability & Coherence: From Persistent Cycles to Endogenous Fluctuations

Frisch model and harmonic Brownian motion (Chen, 1999)

Principle of large numbers and Lucas fallacy (Chen, 1999-2002)

Birth-death process and economic coherence (Chen 2001, Li 2002)

Dynamic Microeconomics and Strategic Pricing under Limited Market and Economic Physics (Chen 2002)

Co-existence of technologies and excess capacity

Lotka-Volterra wavelet and product cycle Gabor wavelet and coherent state in quantum

mechanics Perfect information=total confusion under

Wigner-Gabor-Qian representation

Testing Ground: The Great Depression and The New Economy Bubble

Temin and Rothbad: failure of monetary theory

Lucas: persistence and labor rigidity Feldstein: Interruptive technology Summerce: Two types of business cycles New economy bubble and excess capacity

Economic Instability and Economic Resilience

Dynamic DD-SS and multiple equilibrium

Conflicting trends and uncertainty in IS-LM curve

Three level structure: micro-finance-macro

Intrinsic instability in industry competition and financial market

Proper competition and entry regulation

Rethinking Economic Order

Equilibrium and non-equilibrium order Constructive role of life rhythms and

increasing entropy Wavelet rather than cycle as the building

block of living movements Evolutionary process with necessity and

chance Diagnosis rather than prediction Time window and relevant information

New Ideas

U-shaped and multi-humped distribution Imperfect cycles, complex cycles, persistent

cycles, biological clock, and color chaos Trade-off between complexity & stability General Smith Theorem: division of labor is

limited by market extent, number of resources, and environment fluctuations

Product cycle, excess capacity, and market rationality of investment strategy

Unsolved Issues

Formulation of two-way causality Structural information vs. horizontal

information Origin of (firm, state) boundaries Evolutionary mechanism of hierarchical

structure Dynamic pricing strategy under varying

economy and business cycles Risk management under deterministic and

stochastic uncertainty Distribution of wealth with nonlinear utility