CBRC’s Andrew Sheng talks about new era for policymaking

Theory failure

andrew-sheng2

You have been saying of late that theory has failed you. What do you mean by that?

It is becoming increasingly clear that a lot of our micro and macro assumptions have turned out to be wrong. The most important problem is that a lot of our models have limiting assumptions that state that the market reverts to equilibrium. The theory is that negative feedback will propel the market back towards equilibrium. But, as we now know, the market actually has positive feedback.
With other failures of theo