Meso Foundation of Business Cycles and Market Vitality for Macro Policy: A New Trinity of Micro-Meso-Macro Economy

Ping Chen

China Center for Economic Research,
National School of Development at Peking University in Beijing, China
pchen@ccer.edu.cn
http://pchen.ccer.edu.cn/homepage/Homepage%20English/En.htm
And
Center for New Political Economy,
Economic School at Fudan University in Shanghai, China
CCS Seminar at Columbia University, Feb.24, 2010

Abstract
New science of complexity provides more advanced tools in analyzing macro and financial indexes. Two discoveries changed current view of macro and financial economics. First, major source of business fluctuations lies in the meso level (financial intermediates and industrial organization) with little contribution from micro foundations (households or firms). Second, financial market is more stable in frequency domain rather than in price level domain. Business cycles are more like biological clock with endogenous instability and systematic resilience (the Schumpeter's view). We develop a new framework of economy with three layers and new policy target in business cycle management. A general theory of collective movement in financial market could explain complex features in option pricing and financial crisis.

320140505083.pdf