Advanced Economic Dynamics Ping Chen

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 Synthesis • Marginal and Non-Marginal Pricing • Credit Expansion and Financial Crisis • Equilibrium 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 Labor • Wealth is created by increasing division of labor. • Dilemma: Invisible hand vs. market extent • Price and Value: Labor Cost

Price Deviations from Value:Cost vs. Psychological Choice • Marx: surplus value created by labor • Marginal revolution • The 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 substitution • Muth: Rational expectations • Lucas (new classical): Lucas critique of control theory and microfoundations under rational expectations • New Keynesian defense: labor rigidity

Supply Side • Real business cycle school • The HP trend and cycles • Welfare 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 scale • Theoretical 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

Advanced Economic Dynamics Ping Chen