Ping Chen:Meso Foundation of Business Cycles and Market Vitality for Macro Policy

CENTER ON CAPITALISM AND SOCIETY
COLUMBIA UNIVERSITY
http://www.capitalism.columbia.edu/
Working Paper No. 54, February 2010∗
MESO FOUNDATION OF BUSINESS CYCLES AND
MARKET VITALITY FOR MACRO POLICY:
A NEW TRINITY OF MICRO-MESO-MACRO ECONOMY
Ping Chen

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.

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