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Stabilization Policy as Bifurcation Selection: Would Keynesian Policy Work if the World Really were Keynesian?

  • William A. Barnett

    (Washington University in St. Louis)

  • Yijun He

    (Washington University in St. Louis)

  • .

This paper is a follow on to our earlier papers exploring the dynamic properties of the UK continuous time macroeconometric model. This paper is focussed on policy implications. We take the position that the term "stabilization policy" implies that the economy would be unstable without policy, and hence stabilization policy only can be understood as bifurcation to stability, conditionally upon the assumption that the economy would be unstable without that policy bifurcation. We apply the methodology of mathematical bifurcation to investigate this point of view. We conclude that bifurcation selection to stability is more complicated than commonly believed to be the case in much Keynesian economics. However, this conclusion is consistent with common views in the mathematical literature on bifurcation of high dimensional systems.

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Paper provided by EconWPA in its series Macroeconomics with number 9906008.

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Date of creation: 15 Jun 1999
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Handle: RePEc:wpa:wuwpma:9906008
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  1. Goenka, Aditya & Kelly, David L. & Spear, Stephen E., 1998. "Endogenous Strategic Business Cycles," Journal of Economic Theory, Elsevier, vol. 81(1), pages 97-125, July.
  2. Benhabib, Jess & Nishimura, Kazuo, 1979. "The hopf bifurcation and the existence and stability of closed orbits in multisector models of optimal economic growth," Journal of Economic Theory, Elsevier, vol. 21(3), pages 421-444, December.
  3. Barnett William A. & He Yijun, 1999. "Stability Analysis of Continuous-Time Macroeconometric Systems," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 3(4), pages 1-22, January.
  4. Herbert E. Scarf, 1959. "Some Examples of Global Instability of the Competitive Equilibrium," Cowles Foundation Discussion Papers 79, Cowles Foundation for Research in Economics, Yale University.
  5. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  6. repec:cup:cbooks:9780521484619 is not listed on IDEAS
  7. Bergstrom, A. R. & Nowman, K. B. & Wymer, C. R., 1992. "Gaussian estimation of a second order continuous time macroeconometric model of the UK," Economic Modelling, Elsevier, vol. 9(4), pages 313-351, October.
  8. Barnett, William A. & Gallant, A. Ronald & Hinich, Melvin J. & Jungeilges, Jochen A. & Kaplan, Daniel T. & Jensen, Mark J., 1997. "A single-blind controlled competition among tests for nonlinearity and chaos," Journal of Econometrics, Elsevier, vol. 82(1), pages 157-192.
  9. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  10. Jean-Michel Grandmont, 1998. "Expectations Formation and Stability of Large Socioeconomic Systems," Econometrica, Econometric Society, vol. 66(4), pages 741-782, July.
  11. Engelbert Dockner & Gustav Feichtinger, 1991. "On the optimality of limit cycles in dynamic economic systems," Journal of Economics, Springer, vol. 53(1), pages 31-50, February.
  12. Nieuwenhuis, Herman J. & Schoonbeek, Lambert, 1997. "Stability and the structure of continuous-time economic models," Economic Modelling, Elsevier, vol. 14(3), pages 311-340, July.
  13. Bergstrom, A. R. & Nowman, K. B. & Wandasiewicz, S., 1994. "Monetary and fiscal policy in a second-order continuous time macroeconometric model of the United Kingdom," Journal of Economic Dynamics and Control, Elsevier, vol. 18(3-4), pages 731-761.
  14. Schmitt-Grohe, Stephanie, 1997. "Comparing Four Models of Aggregate Fluctuations due to Self-Fulfilling Expectations," Journal of Economic Theory, Elsevier, vol. 72(1), pages 96-147, January.
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