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Hopf bifurcation in the Clarida, Gali, and Gertler model

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  • Barnett, William A.
  • Eryilmaz, Unal

Abstract

We explore bifurcation phenomena in the open-economy New Keynesian CGG Model based on Clarida et al. (2001, 2002). We find that the open economy framework can bring about more complex dynamics, along with a wider variety of qualitative behaviors and policy responses. Introducing parameters related to the open economy structure affects the values of bifurcation parameters and changes the location of bifurcation boundaries. As a result, the stratification of the confidence region, as previously seen in closed-economy New Keynesian models, remains an important research and policy risk to be considered in the context of the open-economy New Keynesian functional structures. In fact, econometrics and optimal policy design become more complex within an open economy. Dynamical inferences need to be qualified by the risk of bifurcation boundaries crossing the confidence regions. Without adequate prior econometric research, policy design needs to take into consideration that a change in monetary policy can produce an unanticipated bifurcation.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 31 (2013)
Issue (Month): C ()
Pages: 401-404

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Handle: RePEc:eee:ecmode:v:31:y:2013:i:c:p:401-404

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Stability; Bifurcation; Open economy; New Keynesian; Macroeconomics; Dynamic systems;

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References

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  1. Banerjee, Sanjibani & Barnett, William A. & Duzhak, Evgeniya A. & Gopalan, Ramu, 2011. "Bifurcation Analysis of Zellner's Marshallain Macroeconomic Model," MPRA Paper 30059, University Library of Munich, Germany.
  2. Barnett, William A. & Duzhak, Evgeniya Aleksandrovna, 2008. "Non-robust dynamic inferences from macroeconometric models: Bifurcation stratification of confidence regions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(15), pages 3817-3825.
  3. Senay, Ozge & Sutherland, Alan, 2004. "The Expenditure Switching Effect and the Choice Between Fixed and Floating Exchange Rates," CEPR Discussion Papers 4300, C.E.P.R. Discussion Papers.
  4. Eric M. Leeper & Christopher A. Sims, 1994. "Toward a Modern Macroeconomic Model Usable for Policy Analysis," NBER Chapters, in: NBER Macroeconomics Annual 1994, Volume 9, pages 81-140 National Bureau of Economic Research, Inc.
  5. Clarida, Richard & Gali, Jordi & Gertler, Mark, 2002. "A simple framework for international monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 879-904, July.
  6. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  7. Barnett, William & Eryilmaz, Unal, 2012. "An analytical and numerical search for bifurcations in open economy New Keynesian models," MPRA Paper 40426, University Library of Munich, Germany.
  8. Barnett, William A. & He, Yijun, 2002. "Stabilization Policy As Bifurcation Selection: Would Stabilization Policy Work If The Economy Really Were Unstable?," Macroeconomic Dynamics, Cambridge University Press, vol. 6(05), pages 713-747, November.
  9. He, Yijun & Barnett, William A., 2006. "Singularity bifurcations," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 5-22, March.
  10. Wei Dong, 2007. "Expenditure-Switching Effect and the Choice of Exchange Rate Regime," Working Papers 07-54, Bank of Canada.
  11. Barnett, William A. & Duzhak, Evgeniya A., 2008. "Empirical assessment of bifurcation regions within new Keynesian models," MPRA Paper 11249, University Library of Munich, Germany.
  12. Jordi Gali & Tommaso Monacelli, 1999. "Optimal Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Boston College Working Papers in Economics 438, Boston College Department of Economics, revised 15 Nov 1999.
  13. Jordi Gal� & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
  14. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, December.
  15. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach," American Economic Review, American Economic Association, vol. 91(2), pages 248-252, May.
  16. Barnett William A. & He Yijun, 1999. "Stability Analysis of Continuous-Time Macroeconometric Systems," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 3(4), pages 1-22, January.
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Cited by:
  1. William Barnett & Taniya Ghosh, 2013. "Stability Analysis of Uzawa-Lucas Endogenous Growth Model," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201304, University of Kansas, Department of Economics, revised May 2013.

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