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Structural Stability Analysis in a Dynamic IS-LM-AS Macroeconomic Model with Inflation Expectations

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  • Ciro Eduardo Bazán Navarro
  • Renato Mario Benazic Tomé
  • Peiguang Wang

Abstract

In this article, we carry out the structural analysis of an IS-LM-AS macroeconomic model with adaptive inflation expectations, exploring the presence of a possible local bifurcation. We prove that the model is structurally unstable when the speed with which economic agents adjust their expectations about future inflation is equal to the inverse of the semi-elasticity of real money demand with respect to the nominal interest rate since the periodic solutions are lost when the adaptive expectations parameter suffer any small change, ceteris paribus. Additionally, the phase portraits of the instantaneous rate of change of the real interest rate, the inflation rate, and the instantaneous rate of change of the inflation rate are numerically simulated in â„ 3 with MATLAB for three asymptotically and locally stable cases and for the degenerate Hopf bifurcation. Finally, our results show that, specifically, in the case of pure conjugate complex eigenvalues, the economy could enter periods of an inflationary/deflationary spiral when the adaptive expectations parameter is of greater magnitude to the inverse of the semi-elasticity of real money demand balances with respect to the nominal interest rate, regardless of its initial state.

Suggested Citation

  • Ciro Eduardo Bazán Navarro & Renato Mario Benazic Tomé & Peiguang Wang, 2022. "Structural Stability Analysis in a Dynamic IS-LM-AS Macroeconomic Model with Inflation Expectations," International Journal of Differential Equations, Hindawi, vol. 2022, pages 1-21, October.
  • Handle: RePEc:hin:jnijde:5026061
    DOI: 10.1155/2022/5026061
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    Cited by:

    1. Bazán Navarro, Ciro Eduardo & Benazic Tomé, Renato Mario, 2024. "Qualitative behavior in a fractional order IS-LM-AS macroeconomic model with stability analysis," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 217(C), pages 425-443.

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