Complex Systems Approach to Economic Dynamics
Economic Systems exhibit complex dynamics evidenced by large-amplitude and aperiodic fluctuations in economic variables, such as foreign exchange rates and stock market prices, indicating that these systems are driven far from the equilibrium. Characteriz
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Founding Editors: M. Beckmann H.P. Künzi Managing Editors: Prof. Dr. G. Fandel Fachbereich Wirtschaftswissenschaften Fernuniversität Hagen Feithstr. 140/AVZ II, 58084 Hagen, Germany Prof. Dr. W. Trockel Institut für Mathematische Wirtschaftsforschung (IMW) Universität Bielefeld Universitätsstr. 25, 33615 Bielefeld, Germany Editorial Board: A. Basile, A. Drexl, H. Dawid, K. Inderfurth, W. Kürsten, U. Schittko
Abraham C.-L. Chian
Complex Systems Approach to Economic Dynamics
With 40 Figures
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Professor Abraham C.-L. Chian National Institute for Space Research (INPE) P.O. Box 515 S˜ao José dos Campos-SP 12227-010 Brazil E-mail: [email protected]
Library of Congress Control Number: 2007923717
ISSN 0075-8442 ISBN 978-3-540-39752-6 Springer Berlin Heidelberg New York This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. Springer is a part of Springer Science+Business Media springer.com © Springer-Verlag Berlin Heidelberg 2007 The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Production: SPS, India Cover-design: WMX Design GmbH, Heidelberg SPIN 11856757
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Printed on acid-free paper
I wish to dedicate this monograph to my parents Mr. Jong Hong Chian and Mrs. Pi-Sia Wong Chian
Preface
Characterization of the complex dynamics of economic cycles, by identifying regular and irregular patterns and regime switching between different dynamic phases in the economic time series, is the key to improve economic forecasting. Statistical analysis of stock markets and foreign exchange markets have demonstrated the intermittent nature of nonlinear economic time series, which exhibits non-Gaussian behavior in the probability distribution function of price changes and power-law dependence on frequency in the spectral density. Nonlinear deterministic models of economic dynamics are capable of simulating intermittent time series arising from a transition from order to chaos, or from weak chaos to strong chaos, which can explain the origin and nature of intermittency observed in economic systems. This monograph studies complex economic dynamics based on a forced van der Pol oscillator model of business cycles. The technique of numerical modeling is applied to characterize the fundamental properties of complex economic systems which present multiscale and multistabi
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