NONLINEAR AND COMPLEX DYNAMICS IN ECONOMICS

Abstract

This paper is an up-to-date survey of the state of the art in dynamical systems theory relevant to high levels of dynamical complexity, characterizing chaos and near-chaos, as commonly found in the physical sciences. The paper also surveys applications in economics and finance. This survey does not include bifurcation analyses at lower levels of dynamical complexity, such as Hopf and transcritical bifurcations, which arise closer to the stable region of the parameter space. We discuss the geometric approach (based on the theory of differential/difference equations) to dynamical systems and make the basic notions of complexity, chaos, and other related concepts precise, having in mind their (actual or potential) applications to economically motivated questions. We also introduce specific applications in microeconomics, macroeconomics, and finance and discuss the policy relevance of chaos.