Advanced Theoretical Economics March 25, 2005

1
Advanced Theoretical Economics March 25, 2005 

• Prof. Chen Ping
• China Center for Economic Research, Peking
  University

2
New Plan for Complex Economics

• Introduction (completed)
• Why we need complex economics?
• Puzzle in modeling complex phenomena
• Gap between theory and practice
• Historical process in developing economic science
• Plan of this book

3
Advances in Our Research

• Consumption-smooth (life cycle, permanent income,
  random walk, unit root) model gt solved (Chen
  Ping)
• Option pricing model by birth-death process (Zeng
  Wei)
• Unsolved problems
• Equity premium puzzle (Mehra and Prescott, 1985)
• Growth (Solow, Lucas, Romer)
• Ricardo-equivalence (Barro)

4
Joseph Stiglitz Three Unsolved Issues

• Macroeconomic mechanism of business cycles and
  financial crisis. Say, devaluation should
  increase competitiveness, but not so in Asian
  financial crisis. (Greespans misjudgment in
  1990s).
• Evolutionary process of RD. Increasing the
  ability of survival may not have higher market
  value.
• Theory of organization. Corporate governance is
  still a black box. Why workers working for
  governments or private industry have different
  efficiency?

5
Ernst von Weizsaecker Limits to Privatization

• Balance between market, state, and civic society
• Efficiency in what sense?
• Bias in American pharmaceutical industry
• American patent of Indian traditional medicine
• Re-nationalization of British railway

6
H.Kuroda ???? Causes of Japanese Bubble in late
1980s

• Japanese Yuan appreciated 70 within 3 years gt
  deflation pressure
• No inflation, continuing trade surplus,
  continuing growth
• utopia of Japan number one
• Easy monetary policy
• Asset bubble gt real estate value increased 5-6
  times
• Lesson Neutrality of money???

7
??? ??????

• What is information?
• Shannon entry, measure of information or
  ignorance?
• Prigogine information as correlation flow
• Wigner time window and correlation