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Making dynamic modelling effective in economics

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  • McCauley, Joseph L.

Abstract

Mathematics has been extremely effective in physics, but not in economics beyond finance. To establish economics as science we should follow the Galilean method and try to deduce mathematical models of markets from empirical data, as has been done for financial markets. Financial markets are nonstationary. This means that 'value' is subjective. Nonstationarity also means that the form of the noise in a market cannot be postulated a priroi, but must be deduced from the empirical data. I discuss the essence of complexity in a market as unexpected events, and end with a biological speculation about market growth.

Suggested Citation

  • McCauley, Joseph L., 2004. "Making dynamic modelling effective in economics," MPRA Paper 2130, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:2130
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    References listed on IDEAS

    as
    1. Mirowski,Philip, 2002. "Machine Dreams," Cambridge Books, Cambridge University Press, number 9780521772839, September.
    2. Per Bak & Simon F. Norrelykke & Martin Shubik, 1998. "The Dynamics of Money," Research in Economics 98-11-102e, Santa Fe Institute.
    3. Gemunu H. Gunaratne & Joseph L. McCauley, 2002. "A theory for Fluctuations in Stock Prices and Valuation of their Options," Papers cond-mat/0209475, arXiv.org.
    4. Granger,Clive W. J., 1999. "Empirical Modeling in Economics," Cambridge Books, Cambridge University Press, number 9780521778251.
    5. Mirowski,Philip, 2002. "Machine Dreams," Cambridge Books, Cambridge University Press, number 9780521775267, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Economics; fniancial markets; stochastic process; Markov process; complex systems;
    All these keywords.

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • G0 - Financial Economics - - General
    • A2 - General Economics and Teaching - - Economic Education and Teaching of Economics

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