New Phenomena Identified in a Stochastic Dynamic Macroeconometric Model: A Bifurcation Perspective
AbstractIn this paper, we consider new bifurcation phenomena in a class of stochastic dynamic macroeconometric models as represented by the stochastic model developed by Leeper and Sims (1994). This model serves as a prototype that could be suitable for monetary policy analysis although the complexity of the model makes any attempt of analytical analysis a difficult task. Leeper and Sims model consists of differential equations with a set of algebraic constraints. Our analysis reveals that singularity occurs within a small neighborhood of estimated parameter values. Singularity boundary is determined. When the parameter values are close to the singularity boundary, one eigenvalue of the linearized part of the model rapidly moves to infinity while others remain bounded, implying nearly instantaneous response of some variables to changes of other variables. On the singularity boundary, the number of differential equations will decrease while the number of algebraic constraints will increase. Such change in the order of dynamics is a new phenomenon in macroeconometric models. We shall determine the singularity-induced bifurcation and its effect on model behavior.
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 145.
Date of creation: 11 Aug 2004
Date of revision:
stability; bifurcation; macroeconometric systems;
Find related papers by JEL classification:
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
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- NEP-ALL-2004-08-16 (All new papers)
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- He, Yijun & Barnett, William A., 2006.
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