ılV ABSTRACT The possibility that economic fluctuations caused by internal dynamics of the economy has recently attracted the attention of economists. Models attempting to explain irregularity of economic variables consisted of purely deterministic ones in which the equilibrium is unique, and stochastic ones in which multiple equilibria occur and indeterminacy is relevant. Conditions under which endogenous cycles and chaos exist are mainly capital or goods market imperfections, low elasticity of substitution between factors of production, limited participation because of legal and demographic restrictions, etc. Policy recommendations varied according to the assumptions of the particular study; furthermore, government intervention to eliminate such instability cannot be justified in the models in which fluctuations are already Pareto-optimal. Another problem for advocates of government intervention is the question that why private agents do not establish institutions (such as a financial product) to offset the fluctuations, and increase their own and social welfare. One possible answer may well be that such partial reforms conducted by the government or by the private agents initially decrease social welfare. The observation of the overreaction in financial markets or complicated production technologies in today's complex economy is a reasonable motivation for economists to use and improve these models to understand the outside world.

67