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Chaotic Time Series Analysis in Economics: Balance and Perspectives

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  • Marisa Faggini

    ()
    (Department of Economics and Statistics, University of Salerno)

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    Abstract

    To show that a mathematical model exhibits chaotic behaviour does not prove that chaos is also present in the corresponding data. To convincingly show that a system behaves chaotically, chaos has to be identified directly from the data. From an empirical point of view, it is difficult to distinguish between fluctuations provoked by random shocks and endogenous fluctuations determined by the nonlinear nature of the relation between economic aggregates. For this purpose, chaos tests test are developed to investigate the basic features of chaotic phenomena: nonlinearity, fractal attractor, and sensitivity to initial conditions. The aim of the paper is not to review the large body of work concerning nonlinear time series analysis in economics, about which much has been written, but rather to focus on the new techniques developed to detect chaotic behaviours in the data. More specifically, our attention will be devoted to reviewing the results reached by the application of these techniques to economic and financial time series and to understand why chaos theory, after a period of growing interest, appears now not to be such an interesting and promising research area.

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    File URL: http://web.econ.unito.it/prato/papers/n25.pdf
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    Bibliographic Info

    Paper provided by Former Department of Economics and Public Finance "G. Prato", University of Torino in its series Working papers with number 25.

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    Length: 30 pages
    Date of creation: Oct 2011
    Date of revision:
    Handle: RePEc:tur:wpaper:25

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    Keywords: Economic dynamics; nonlinearity; tests for chaos; chaos;

    This paper has been announced in the following NEP Reports:

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