IDEAS home Printed from https://ideas.repec.org/p/isc/iscwp1/ercwp1308.html
   My bibliography  Save this paper

Symbolic Dynamics and Control in a Matching Labor Market Model

Author

Listed:
  • Vivaldo M. Mendes

    (ISCTE - Department of Economics and UNIDE-ERC)

  • Diana A. Mendes

    (ISCTE - Department of Quantitative Methods and UNIDE-StatMath)

  • José Sousa Ramos

    (Technical University of Lisbon, IST, Department of Mathematics)

Abstract

In this paper we apply the techniques of symbolic dynamics and chaos control to the analysis of a labor market model which shows chaotic behavior and large volatility in employment flows. The possibility that chaotic dynamics may arise in modern labor markets had been totally strange to economics until recently. In an interesting paper Bhattacharya and Bunzel [2] have found that the discrete time version of the Pissarides-Mortensen matching model, as formulated in Ljungqvist and Sargent [23], can easily lead to chaotic dynamics under standard sets of parameter values. This paper explores this version of the model with two main objectives in mind: (i) to clarify some open questions raised by Bhattacharya and Bunzel by providing a rigorous proof of the existence of chaotic dynamics in the model; and (ii) to show that this type of dynamics can be easily controlled by linear feedback techniques – the OGY method – without producing modifications to the original model, apart from locally changing its type of stability. These techniques may be of significant importance for the study of economic theory and policy, in particular, if complexity becomes more frequently encountered in the models developed to properly describe the behavior of modern economies, and the view of purely exogenous shocks as explaining cycles and volatility looses its large predominance in contemporary economics.

Suggested Citation

  • Vivaldo M. Mendes & Diana A. Mendes & José Sousa Ramos, 2008. "Symbolic Dynamics and Control in a Matching Labor Market Model," Working Papers Series 1 ercwp1308, ISCTE-IUL, Business Research Unit (BRU-IUL).
    • Handle: RePEc:isc:iscwp1:ercwp1308
    as

    Download full text from publisher

    File URL: http://bru-unide.iscte.pt/RePEc/pdfs/ERCwp1308.pdf
    File Function: Third draft, 2008
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    2. Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1105-1129, September.
    3. Nishimura Kazuo & Sorger Gerhard, 1996. "Optimal Cycles and Chaos: A Survey," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 1(1), pages 1-20, April.
    4. Holyst, Janusz A & Hagel, Tilo & Haag, Gunter & Weidlich, Wolfgang, 1996. "How to Control a Chaotic Economy?," Journal of Evolutionary Economics, Springer, vol. 6(1), pages 31-42, February.
    5. Carl Chiarella & Xue-Zhong He, 2000. "Stability of Competitive Equilibria with Heterogeneous Beliefs and Learning," Research Paper Series 37, Quantitative Finance Research Centre, University of Technology, Sydney.
    6. Contini, Bruno & Revelli, Riccardo, 1997. "Gross flows vs. net flows in the labor market: What is there to be learned?," Labour Economics, Elsevier, vol. 4(3), pages 245-263, September.
    7. Jean-Michel Grandmont, 1998. "Expectations Formation and Stability of Large Socioeconomic Systems," Econometrica, Econometric Society, vol. 66(4), pages 741-782, July.
    8. Boldrin, Michele & Woodford, Michael, 1990. "Equilibrium models displaying endogenous fluctuations and chaos : A survey," Journal of Monetary Economics, Elsevier, vol. 25(2), pages 189-222, March.
    9. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August.
    10. Mitra, Tapan, 2001. "A Sufficient Condition for Topological Chaos with an Application to a Model of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 133-152, January.
    11. Kaas, Leo, 1998. "Stabilizing chaos in a dynamic macroeconomic model," Journal of Economic Behavior & Organization, Elsevier, vol. 33(3-4), pages 313-332, January.
    12. Chow, Gregory C., 1997. "Dynamic Economics: Optimization by the Lagrange Method," OUP Catalogue, Oxford University Press, number 9780195101928.
    13. Hoyt Bleakley & Ann E. Ferris & Jeffrey C. Fuhrer, 1999. "New data on worker flows during business cycles," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 49-76.
    14. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
    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. Vivaldo M. Mendes & Diana A. Mendes, 2006. "Active Interest Rate Rules and the Role of Stabilization Policy R&D Tax Credits," Working Papers Series 1 ercwp0208, ISCTE-IUL, Business Research Unit (BRU-IUL).
    2. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
    3. Brock, W.A. & Hommes, C.H., 1997. "Models of Compelxity in Economics and Finance," Working papers 9706, Wisconsin Madison - Social Systems.
    4. Alexeeva, Tatyana A. & Kuznetsov, Nikolay V. & Mokaev, Timur N., 2021. "Study of irregular dynamics in an economic model: attractor localization and Lyapunov exponents," Chaos, Solitons & Fractals, Elsevier, vol. 152(C).
    5. Barkley Rosser, J. Jr., 2001. "Complex ecologic-economic dynamics and environmental policy," Ecological Economics, Elsevier, vol. 37(1), pages 23-37, April.
    6. Brock, W.A. & Hommes, C.H. & Wagener, F.O.O., 2009. "More hedging instruments may destabilize markets," Journal of Economic Dynamics and Control, Elsevier, vol. 33(11), pages 1912-1928, November.
    7. Wieland, Cristian & Westerhoff, Frank H., 2005. "Exchange rate dynamics, central bank interventions and chaos control methods," Journal of Economic Behavior & Organization, Elsevier, vol. 58(1), pages 117-132, September.
    8. Orlando Gomes, 2007. "Routes to chaos in macroeconomic theory," Journal of Economic Studies, Emerald Group Publishing, vol. 33(6), pages 437-468, January.
    9. Hommes, Cars, 2018. "Behavioral & experimental macroeconomics and policy analysis: a complex systems approach," Working Paper Series 2201, European Central Bank.
    10. Barnett, William A. & Chen, Guo, 2015. "Bifurcation of Macroeconometric Models and Robustness of Dynamical Inferences," Foundations and Trends(R) in Econometrics, now publishers, vol. 8(1-2), pages 1-144, September.
    11. Orlando Gomes, 2006. "Routes to chaos in macroeconomic theory," Journal of Economic Studies, Emerald Group Publishing, vol. 33(6), pages 437-468, November.
    12. Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(5), pages 633-664, November.
    13. Orlando Gomes, 2006. "Routes to chaos in macroeconomic theory," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 33(6), pages 437-468, November.
    14. Stefano Eusepi, 2005. "Comparing forecast-based and backward-looking Taylor rules: a "global" analysis," Staff Reports 198, Federal Reserve Bank of New York.
    15. Gomes, Orlando, 2008. "Too much of a good thing: Endogenous business cycles generated by bounded technological progress," Economic Modelling, Elsevier, vol. 25(5), pages 933-945, September.
    16. Thomas A. Lubik & Michael U. Krause, 2004. "On-the-Job Search and Business Cycle Dynamics," Econometric Society 2004 North American Summer Meetings 489, Econometric Society.
    17. Peter Diamond, 2011. "Unemployment, Vacancies, Wages," American Economic Review, American Economic Association, vol. 101(4), pages 1045-1072, June.
    18. Gomes, Orlando, 2009. "Stability under learning: The endogenous growth problem," Economic Modelling, Elsevier, vol. 26(5), pages 807-816, September.
    19. Brock, William A. & Hommes, Cars H. & Wagener, Florian O. O., 2005. "Evolutionary dynamics in markets with many trader types," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 7-42, February.
    20. Hommes, Cars & Zhu, Mei, 2014. "Behavioral learning equilibria," Journal of Economic Theory, Elsevier, vol. 150(C), pages 778-814.

    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:isc:iscwp1:ercwp1308. 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: Henrique Monteiro (email available below). General contact details of provider: https://edirc.repec.org/data/uisctpt.html .

    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.