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

Author

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  • 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
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    References listed on IDEAS

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