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The J2 Status of Chaos in Period Macroeconomic Models

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  • Peter Flaschel

    ()
    (Bielefeld University, Germany)

  • Christian Proano

    ()
    (IMK at the Hans Boeckler Foundation)

Abstract

We reconsider the issue of the (non-)equivalence of period and continuous time analysis in macroeconomic theory and its implications for the existence of chaotic dynamics in empirical macro. We start from the methodological precept that period and continuous time representations of the same macrostructure should give rise to the same qualitative outcome, i.e. in particular, that the results of period analysis should not depend on the length of the period. A simple example where this is fulfilled is given by the Solow growth model, while all chaotic dynamics in period models of dimension less than 3 are in conflict with this precept. We discuss a recent and typical example from the literature, where chaos results from an asymptotically stable continuous-time macroeconomic model when this is reformulated as a discrete-time model with a long period length.

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Bibliographic Info

Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 14-2008.

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Length: 14 pages
Date of creation: 2008
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Handle: RePEc:imk:wpaper:14-2008

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Keywords: Period models; continuous time; (non-)equivalence; chaotic dynamics.;

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  1. Foley, Duncan K, 1975. "On Two Specifications of Asset Equilibrium in Macroeconomic Models," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(2), pages 303-24, April.
  2. Medio,Alfredo & Gallo,Giampaolo, 1995. "Chaotic Dynamics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521484619.
  3. Medio, Alfredo, 1991. "Continuous-time models of chaos in economics," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 16(1-2), pages 115-151, July.
  4. Peter Flaschel & Reiner Franke & Christian Proano, 2008. "On the Determinacy of New Keynesian Models with Staggered Wage and Price Setting," IMK Working Paper, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 11-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  5. Invernizzi, Sergio & Medio, Alfredo, 1991. "On lags and chaos in economic dynamic models," Journal of Mathematical Economics, Elsevier, vol. 20(6), pages 521-550.
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Cited by:
  1. Christian R. Proano, 2009. "Heterogenous Behavioral Expectations, FX Fluctuations and Dynamic Stability in a Stylized Two-Country Macroeconomic Model," IMK Working Paper, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 03-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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