Complexity in Deterministic, Nonlinear Business-Cycle Models — Foundations, Empirical Evidence, and Predictability

Abstract

Business-cycle theory represents one of the oldest fields in economics. While it was treated as a nearly esoteric field in specialized graduate texts during the late 1960s and early 1970s, the last fifteen years saw it resurrecting even as a synonym for dynamic macroeconomics. The Rational Expectations literature of the late 1970s and early 1980s and the development of sophisticated econometric tools in investigations of an economy’s fluctuations occasionally seemed to encourage the believe that business-cycle theory was an invention of the so-called New Classical economics. However, it is a fact that the observed cycling of an economy constituted the major impetus for many a classical and neoclassical economist in the 19th and early 20th century to engage in economic theorizing at all. Haberler’s (1937) seminal text on the history of business-cycle theory demonstrates in an enlightening fashion that the ups and downs in economic activity were central not only in - to name just a few - Hawtrey’s (1913), Hayek’s (1933), Marx’s (1867), Pigou’s (1929), or Sismondi’s (1837) work but that numerous, usually forgotten writers concentrated on oscillations in particular markets or the entire economy.