CHAOS AND NONLINEAR FORECASTABILITY IN ECONOMICS AND FINANCE

Both academic and applied researchers studying financial markets and o ther economic series have become interested in the topic of chaotic dy namics. The possibility of chaos in financial markets opens important questions for both economic theorists as well as financial market part icipants. This paper will clarify the empirical evidence for chaos in financial markets and macroeconomic series emphasizing what exactly is known about these time series in terms of forecastability and chaos. We also compare these two concepts from a financial market perspective contrasting the objectives of the practitioner with those of the econ omic researchers. Finally, we will speculate on the impact of chaos an d nonlinear modelling on future economic research.