On the new central bank strategy toward monetary and financial instabilities management in finances: Econophysical analysis of nonlinear dynamical financial systems

Abstract: We describe the innovations in finances, introduced over the recent decades, and analyze most of the business and regulatory challenges, faced by the financial industry, because of the present disruptive changes in the global capital markets. We use the integrative thinking approach to formulate the new central bank strategy and propose that the new strategy has to be focused on the constant management of the monetary and financial instabilities, using the knowledge base in the field of econophysics. We propose the new theoretical model of economics, which is called the Nonlinear Dynamic Stochastic General Equilibrium (NDSGE), which takes to the account the nonlinearities, appearing during the interaction between the business cycles. We show that the central banks, which will apply the knowledge gained from the econophysical analysis to understand the complex processes in the national financial systems in the time of high volatility in global capital markets, will be able to govern the national financial systems successfully.