IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0295859.html
   My bibliography  Save this article

Feedback dynamic control for exiting a debt-induced spiral in a deterministic Keen model

Author

Listed:
  • Ivan Perez Avellaneda
  • Francisco Rosales
  • Luis A Duffaut Espinosa

Abstract

The Keen model is designed to represent an economy as a dynamic system governed by the interactions between private debt, wage share, and employment rate. When certain conditions are met, the model can lead to a debt spiral, which accurately mimics the impact of a financial crisis on an economy. This manuscript presents a recipe for breaking this spiral by expressing Keen’s model as an affine nonlinear system that can be modified through policy interventions. We begin by considering critical initial conditions that resemble a financial crisis to achieve this goal. We then locate a desired point within the system’s vector field that leads to a desirable equilibrium and design a path towards it. This path is later followed using one-step-ahead optimal control. We illustrate our approach by presenting simulated control scenarios.

Suggested Citation

  • Ivan Perez Avellaneda & Francisco Rosales & Luis A Duffaut Espinosa, 2024. "Feedback dynamic control for exiting a debt-induced spiral in a deterministic Keen model," PLOS ONE, Public Library of Science, vol. 19(2), pages 1-23, February.
    • Handle: RePEc:plo:pone00:0295859
    DOI: 10.1371/journal.pone.0295859
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0295859
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0295859&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0295859?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Hugo Bailly & Frédéric Mortier & Gaël Giraud, 2023. "Empirical analysis of a debt-augmented Goodwin model for the United States," Working Papers hal-04139954, HAL.
    2. Hugo Bailly & Frédéric Mortier & Gaël Giraud, 2023. "Empirical analysis of a debt-augmented Goodwin model for the United States," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-04139954, HAL.
    3. David Kendrick, 1976. "Applications of Control Theory to Macroeconomics," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 2, pages 171-190, National Bureau of Economic Research, Inc.
    4. Daron Acemoglu & Asuman Ozdaglar & Alireza Tahbaz-Salehi, 2015. "Systemic Risk and Stability in Financial Networks," American Economic Review, American Economic Association, vol. 105(2), pages 564-608, February.
    5. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    6. Harvie, David, 2000. "Testing Goodwin: Growth Cycles in Ten OECD Countries," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 24(3), pages 349-376, May.
    7. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    8. Mario García Molina & Eleonora Herrera, 2010. "Are there Goodwin employment-distribution cycles? International empirical evidence," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, December.
    9. Leila E Davis & Joao Paulo A de Souza & Gonzalo Hernandez, 2019. "An empirical analysis of Minsky regimes in the US economy," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 43(3), pages 541-583.
    10. Michael Kopel, 1997. "Improving the performance of an economic system: Controlling chaos," Journal of Evolutionary Economics, Springer, vol. 7(3), pages 269-289.
    11. James Crotty, 2009. "Structural causes of the global financial crisis: a critical assessment of the 'new financial architecture'," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 33(4), pages 563-580, July.
    12. Hołyst, Janusz A & Urbanowicz, Krzysztof, 2000. "Chaos control in economical model by time-delayed feedback method," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(3), pages 587-598.
    13. Xia Lu, 2020. "A Financial Chaotic System Control Method Based on Intermittent Controller," Mathematical Problems in Engineering, Hindawi, vol. 2020, pages 1-12, March.
    14. Volos, Ch. K. & Kyprianidis, I.M. & Stouboulos, I.N. & Vaidyanathan, S. & Pham, V.-T., 2016. "Analysis, adaptive control and circuit simulation of a novel nonlinear finance systemAuthor-Name: Tacha, O.I," Applied Mathematics and Computation, Elsevier, vol. 276(C), pages 200-217.
    15. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
    16. Steve Keen, 1995. "Finance and Economic Breakdown: Modeling Minsky’s “Financial Instability Hypothesis”," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 17(4), pages 607-635, July.
    17. Ricardo Huamán-Aguilar & Abel Cadenillas, 2015. "Government Debt Control: Optimal Currency Portfolio and Payments," Operations Research, INFORMS, vol. 63(5), pages 1044-1057, October.
    18. Lars Grüne, 2005. "Default Risk, Asset Pricing, and Debt Control," Journal of Financial Econometrics, Oxford University Press, vol. 3(1), pages 79-106.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jitendra Parajuli & Kingsley Haynes, 2013. "An Exploratory Analysis of New Firm Formation in New England," ERSA conference papers ersa13p274, European Regional Science Association.
    2. Willis, Geoff, 2011. "Why money trickles up – wealth & income distributions," MPRA Paper 30851, University Library of Munich, Germany.
    3. Willi Semmler, 2011. "Asset Prices, Booms and Recessions," Springer Books, Springer, number 978-3-642-20680-1, March.
    4. Ebrahimi Kahou, Mahdi & Lehar, Alfred, 2017. "Macroprudential policy: A review," Journal of Financial Stability, Elsevier, vol. 29(C), pages 92-105.
    5. William R. White, 2013. "Is Monetary Policy a Science? The Interaction of Theory and Practice over the Last 50 Years," SUERF 50th Anniversary Volume Chapters, in: Morten Balling & Ernest Gnan (ed.), 50 Years of Money and Finance: Lessons and Challenges, chapter 3, pages 73-116, SUERF - The European Money and Finance Forum.
    6. Moura, N.J. & Ribeiro, Marcelo B., 2013. "Testing the Goodwin growth-cycle macroeconomic dynamics in Brazil," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(9), pages 2088-2103.
    7. Solomon Sorin & Golo Natasa, 2013. "Minsky Financial Instability, Interscale Feedback, Percolation and Marshall–Walras Disequilibrium," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 3(3), pages 167-260, October.
    8. Lilit Popoyan, 2020. "Macroprudential Policy: a Blessing or a Curse?," Review of Economics and Institutions, Università di Perugia, vol. 11(1-2).
    9. Ellis, Scott & Sharma, Satish & Brzeszczyński, Janusz, 2022. "Systemic risk measures and regulatory challenges," Journal of Financial Stability, Elsevier, vol. 61(C).
    10. Maurice Obstfeld & Kenneth Rogoff, 2021. "Revisiting speculative hyperinflations in monetary models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 1-11, April.
    11. Ernest Aigner & Florentin Gloetzl & Matthias Aistleitner & Jakob Kapeller, 2018. "The focus of academic economics: before and after the crisis," ICAE Working Papers 75, Johannes Kepler University, Institute for Comprehensive Analysis of the Economy.
    12. Chatelain, Jean-Bernard & Ralf, Kirsten, 2018. "Publish and Perish: Creative Destruction and Macroeconomic Theory," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 46(2), pages 65-101.
    13. Marcelo Madureira Prates, 2013. "Why Prudential Regulation Will Fail to Prevent Financial Crises. A Legal Approach," Working Papers Series 335, Central Bank of Brazil, Research Department.
    14. James Crotty, 2009. "The Bonus-Driven “Rainmaker” Financial Firm: How These Firms Enrich Top Employees, Destroy Shareholder Value and Create Systemic Financial Instability," UMASS Amherst Economics Working Papers 2009-13, University of Massachusetts Amherst, Department of Economics.
    15. Lennard, Jason & Kenny, Seán & Horgan, Emma, 2023. "Banks and the Economy: Evidence from the Irish Bank Strike of 1966," CEPR Discussion Papers 18711, C.E.P.R. Discussion Papers.
    16. Jin, Yi & Zeng, Zhixiong, 2014. "Banking risk and macroeconomic fluctuations," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 350-360.
    17. Welburn, Jonathan William & Hausken, Kjell, 2015. "A Game-Theoretic Model with Empirics of Economic Crises," UiS Working Papers in Economics and Finance 2015/7, University of Stavanger.
    18. Assaf Razin & Steven Rosefielde, 2011. "Currency and Financial Crises of the 1990s and 2000s," CESifo Economic Studies, CESifo Group, vol. 57(3), pages 499-530, September.
    19. James Crotty, 2011. "The Realism of Assumptions Does Matter: Why Keynes-Minsky Theory Must Replace Efficient Market Theory as the Guide to Financial Regulation Policy," UMASS Amherst Economics Working Papers 2011-05, University of Massachusetts Amherst, Department of Economics.
    20. policy, Work stream on macroprudential & Policy, Monetary & Stability, Financial & Albertazzi, Ugo & Martin, Alberto & Assouan, Emmanuelle & Tristani, Oreste & Galati, Gabriele & Vlassopoulos, Thomas , 2023. "The role of financial stability considerations in monetary policy and the interaction with macroprudential policy in the euro area," Occasional Paper Series 272, European Central Bank.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:plo:pone00:0295859. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.