Economic Complexity: Chaos, Sunspots, Bubbles, and Nonlinearity.

• Author: Kehoe, Timothy J.

Edited by William A. Barnett, John Geweke, and Karl Shell. Cambridge: Cambridge University Press, 1989, Pp. xi, 409.

Conference volumes have comparative advantages, relative to referred journals, as sources of information on current research in economics. On one hand, conference volumes usually collect research on related topics in one place. On the other hand, the usual refereeing process and the reward system in academic economics lead to a mean quality of articles that is higher in journals than it is in conference volumes. This same refereeing process, however, also results in a higher variance of quality in conference volumes than in journals, since referees often shy away from what is new or different.

This book contain the proceedings of a conference with the same name that was held at the University of Texas at Austin in May 1987. The focus in on the equilibria of deterministic economic models that appear, in some senses, to be stochastic because of nonlinear dynamics, called chaos, and on the equilibria of otherwise deterministic models that are stochastic because of stochastic processes, called sunspots, that affect the equilibria only through expectations. There are also several articles on bubbles, which, like sunspot equilibria, are examples of self-fulfilling expectations, and a number of articles on econometric methodology for dealing with nonlinear models.

A book like this gives researchers a chance to present their most recent research without having to put it into the finished from required by most journals. It is here that the book's principal strength lies--the reader is able to see what is going on at the frontier of research in a number of related areas. Yet this also contains the book's principal weakness--the quality of the papers is very uneven and there is little effort made in relating the different topics covered.

The book is divided into five parts. Part I contains four papers that deal with sunspot equilibria. In the first paper, David Cass and Karl Shell attempt to give the reader an idea of the "big picture" of sunspots. They relate an example of sunspot equilibria in a simple overlapping generations model to otherwise properties of such models, such as the possibility of equilibria with valued fiat money, and to various properties of our models that allow sunspot equilibria. Pierre-Andre Chiappori and Roger Guesnerie derive conditions for the existence of equilibria that depend nontrivially on sunspots that...