| Complex dynamics provides a new approach in dealing with economic complexity. We study interactively the empirical and theoretical aspects of business cycles. The way of exploring complexity is similar to that in the study of an oscillatory chemical system (BZ system)--a model for modeling complex behavior. We contribute in simulating qualitatively the complex periodic patterns observed from the controlled BZ experiments to narrow the gap between modeling and experiment. The gap between theory and reality is much wider in economics, which involves studies of human expectations and decisions, the essential difference from natural sciences. Our empirical and theoretical studies make substantial progress in closing this gap. With the help from the new development in nonequilibrium physics, i.e., the complex spectral theory, we advance our technique in detecting characteristic time scales from empirical economic data. We obtain correlation resonances, which give oscillating modes with decays for correlation decomposition, from different time series including S&P 500, M2, crude oil spot prices, and GNP. The time scales found are strikingly compatible with business experiences and other studies in business cycles. They reveal the non-Markovian nature of coherent markets. The resonances enhance the evidence of economic chaos obtained by using other tests. The evolving multi-humped distributions produced by the moving-time-window technique reveal the nonequilibrium nature of economic behavior. They reproduce the American economic history of booms and busts. The studies seem to provide a way out of the debate on chaos versus noise and unify the cyclical and stochastic approaches in explaining business fluctuations. Based on these findings and new expectation formulation, we construct a business cycle model which gives qualitatively compatible patterns to those found empirically. The soft-bouncing oscillator model provides a better alternative than the harmonic oscillator or the random walk model as the building block in business cycle theory. The mathematical structure of the model (delay differential equation) is studied analytically and numerically. The research pave the way toward sensible economic forecasting. |
