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The J2 Status of Chaos in Period Macroeconomic Models

  • Peter Flaschel

    ()

    (Bielefeld University, Germany)

  • Christian Proano

    ()

    (IMK at the Hans Boeckler Foundation)

We reconsider the issue of the (non-)equivalence of period and continuous time analysis in macroeconomic theory and its implications for the existence of chaotic dynamics in empirical macro. We start from the methodological precept that period and continuous time representations of the same macrostructure should give rise to the same qualitative outcome, i.e. in particular, that the results of period analysis should not depend on the length of the period. A simple example where this is fulfilled is given by the Solow growth model, while all chaotic dynamics in period models of dimension less than 3 are in conflict with this precept. We discuss a recent and typical example from the literature, where chaos results from an asymptotically stable continuous-time macroeconomic model when this is reformulated as a discrete-time model with a long period length.

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Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 14-2008.

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Length: 14 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:imk:wpaper:14-2008
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  1. Invernizzi, Sergio & Medio, Alfredo, 1991. "On lags and chaos in economic dynamic models," Journal of Mathematical Economics, Elsevier, vol. 20(6), pages 521-550.
  2. repec:cup:cbooks:9780521484619 is not listed on IDEAS
  3. Peter Flaschel & Reiner Franke & Christian Proano, 2008. "On the Determinacy of New Keynesian Models with Staggered Wage and Price Setting," IMK Working Paper 11-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  4. Foley, Duncan K, 1975. "On Two Specifications of Asset Equilibrium in Macroeconomic Models," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 303-24, April.
  5. Medio, Alfredo, 1991. "Continuous-time models of chaos in economics," Journal of Economic Behavior & Organization, Elsevier, vol. 16(1-2), pages 115-151, July.
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