Catastrophe Theory in Forecasting Financial Crises

Abstract

Sometimes in an economy a system becomes susceptible to even a small exterior pulse, which can give a disproportionately strong response. Catastrophe theory allows us to define critical values of pressure upon the system at which a crisis becomes inevitable. Analysis of the quantitative characteristics gives us the chance to draw the qualitative outputs necessary for making management decisions, both on micro and on macro levels, depending on the scales of the analyzed system.