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To try to understand better puzzles regarding economic fluctuations, this chapter presents an overview of collaborative research between economists and physicists, which is focused on applying ideas of statistical physics. Describing outliers is one of the inquiries conducted to determine its existence. Outliers are phenomena that lie outside of patterns of statistical regularity. Evidence consistent with the possibility that such outliers may not exist is reviewed. This possibility is supported by the extensive numerical analysis of a huge database, containing every trade, which results in power-law descriptions of a number of quantities whose fluctuations are of interest. It is also supported by recent analysis of Plerou et al. of a database containing the bid, the ask, and the sale price of each trade of every stock. Further, the Plerou et al. analysis is consistent with a possible theoretical framework for understanding economic fluctuations.

This chapter deals with an extension of the Arrow–Debreu model, namely, the fully stationary intertemporal Arrow–Debreu model where some consumers face restrictions in their ability to transfer wealth between time periods. This extension represents one of the first steps into a genuinely general equilibrium analysis of economic fluctuations. The question here becomes whether a fully stationary model can feature equilibrium solutions that are not stationary. It shows that if there are no restrictions on intertemporal transfers, then all equilibrium solutions are asymptotically stationary, with little room left for fluctuations. However, if some restrictions exist on individual intertemporal transfers, nonstationary equilibrium allocations can exist. The equilibrium manifold approach is used to gain insight on these economies and to assess the role of restrictions in intertemporal wealth transfers in creating or amplifying economic fluctuations.

Several rounds of economic overheating and inflation during the reform and opening period have posed major economic challenges for China. The government adopted expansionary fiscal and monetary policies to achieve short-term economic growth. Yet to create a favorable environment for reform, the economic growth rate must be set at a reasonable level; the pursuit of higher rates of production and increases in the amount output should be prevented; and economic overstretching and chaos must be avoided. China’s economic problems are symptoms of an internal imbalance between investment and consumption, and an external imbalance caused by large surpluses in trade and the balance of payments, leading to a monetary oversupply and higher inflationary pressures. These imbalances are related to shortcomings in China’s economic growth model. The key to addressing them is to improve economic efficiency by advancing reform and allowing the market to play a more important role in resource allocations.

The chapter compares business cycle fluctuations in sub-Saharan African countries to the rest of the world. Its main results are: (i) African economies stand out by their macroeconomic volatility, which is reflected in the volatility of output and other macro variables; (ii) inflation and output tend to be negatively correlated in SSA countries; (iii) unlike advanced economies and emerging markets (EMs), trade balances and current accounts are acyclical in SSA; (iv) the volatility of consumption and investment relative to GDP is larger than in other countries; (v) the cyclicality of consumption and investment is smaller than in advanced economies and EMs; (vi) there is little comovement between consumption and investment; and (vii) consumption and investment are strongly positively correlated with imports. The chapter provides a tentative interpretation in terms of the main shocks hitting these economies and the nature of the mechanisms amplifying or dampening these shocks.

This chapter describes the work of Joseph E. Stiglitz as an economist. Stiglitz received a Nobel Prize in 2001. Stiglitz was born in 1943 and earned his Ph.D. at MIT in 1967. He was appointed professor of economics at Stanford University in 1974, and currently is a university professor at Columbia University. At MIT he tried to explain which assumption was responsible for fluctuations in the economy and the persistence of unemployment. He pointed out that the failure of neoclassical economics was due to the assumption of perfect information and that people were rational in their choices. From here, he developed his work in the economics of information and on the theory of screening. He also looked at macrostability issues related to economic efficiency and market stability. The Economic Role of the State and Globalization and Its Discontent are two of his key publications.

This chapter examines whether fiscal adjustments can contribute to smoothing economic fluctuations, focusing on Korea. There have been two competing views on this issue, one of which—known as Keynesian—emphasizes the effectiveness of fiscal policy, and the other of which—the so-called new classical school—refutes it on the grounds of the crowding-out effect and Ricardian equivalence. The chapter focuses on a trajectory of GDP induced by variations in fiscal expenditure and taxation policy. It estimates three variable vector autoregression models or structural VAR models with Korean fiscal data in order to measure the magnitudes of fiscal multipliers dynamically following changes in fiscal expenditure and taxation. However, the quarterly Korean fiscal and GDP data (covering the period from 1979 Q1 to 2000 Q4) reveal that expansive fiscal policy has no significant or substantial effect on boosting the economy. In order to check the robustness of these results, the chapter considers different combinations of identifying restrictions on the disturbances of the tested structural VAR systems and measures the corresponding fiscal multipliers.