Open AccessNonlinear Dynamics and Chaos: Application to Financial Markets in Pakistan
Author(s) -
Nasir M. Khilji
Publication year - 1994
Publication title -
pakistan development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.154
H-Index - 26
ISSN - 0030-9729
DOI - 10.30541/v33i4iipp.1417-1429
Subject(s) - business cycle , economics , nonlinear system , chaotic , chaos theory , financial market , attractiveness , econometrics , kondratiev wave , dynamics (music) , statistical physics , keynesian economics , macroeconomics , mathematical economics , finance , physics , psychology , acoustics , management , quantum mechanics , psychoanalysis
Recently there has been an increased interest in the theory ofchaos by macroeconomists and fmancial economists. Originating in thenatural sciences, applications of the theory have spread through variousfields including brain research, optics, metereology, and economics. Theattractiveness of chaotic dynamics is its ability to generate largemovements which appear to be random, with greater frequency than linearmodels. Two of the most striking features of any macro-economic data areits random-like appearance and its seemingly cyclical character. Cyclesin economic data have often been noticed, from short-run businesscycles, to 50 years Kodratiev waves. There have been many attempts toexplain them, e.g. Lucas (1975), who argues that random shocks combinedwith various lags can give rise to phenomena which have the appearanceof cycles, and Samuelson (1939) who uses the familiar multiplieraccelerator model. The advantage of using non-linear difference (ordifferential) equation models to explain the business cycle is that itdoes not have to rely on ad hoc unexplained exogenous randomshocks.