University of Manitoba Undergraduate Economics Society

The following are public lectures organized by the UES. Exact dates, times, and locations will be posted as they are arranged. These lectures offer students an excellent opportunity to see practical use of economics theory. All are welcome to attend. We would also like to thank all the faculty members who have so generously donated their time.

"Chaos Theory and its application to economics."

Abstract

Chaos theory is rather new in science, but, it is, in fact, rooted in ancients’ perception of the world. The main idea is that although a complex system, such as world, seems to be generated by a random, and therefore, unpredictable process, it may run by a nonlinear deterministic process. Chaos theory was developed in physics and mathematics, but has been applied to many other fields including Economics. Some Economic time series, such as stock prices, look random, but, according to the chaos theory, they may come from a deterministic nonlinear dynamic process. If the data generating processes is nonlinear, using traditional linear methods in estimation and forecasting can be misleading. Chaos theory is also applied to macroeconomic models, where some concepts, such as endogenous business cycles, can now be explained by the theory. In this lecture, I will review the chaos theory and its mathematical root for economists, and will survey the Economic applications of the theory and various tests developed to detect chaos.