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The J2 Status of "Chaos" in Period Macroeconomic Models

Author

Listed:
  • Flaschel Peter

    (Bielefeld University)

  • Proaño Christian R.

    (Macroeconomic Policy Institute)

Abstract

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 macroeconomics. 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 chosen. 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 typical example from the recent literature, where chaos results from an asymptotically stable continuous-time macroeconomic model when it is reformulated as a discrete-time model with a sufficiently long period length.

Suggested Citation

  • Flaschel Peter & Proaño Christian R., 2009. "The J2 Status of "Chaos" in Period Macroeconomic Models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 13(2), pages 1-12, May.
    • Handle: RePEc:bpj:sndecm:v:13:y:2009:i:2:n:2
    DOI: 10.2202/1558-3708.1674
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    References listed on IDEAS

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    1. Roa Maria J & Vazquez Francisco Jose & Saura Dulce, 2008. "Unemployment and Economic Growth Cycles," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(2), pages 1-21, May.
    2. Invernizzi, Sergio & Medio, Alfredo, 1991. "On lags and chaos in economic dynamic models," Journal of Mathematical Economics, Elsevier, vol. 20(6), pages 521-550.
    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. Medio, Alfredo, 1991. "Continuous-time models of chaos in economics," Journal of Economic Behavior & Organization, Elsevier, vol. 16(1-2), pages 115-151, July.
    5. 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 303-324, April.
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    Cited by:

    1. Christian R. Proano, 2009. "Heterogenous Behavioral Expectations, FX Fluctuations and Dynamic Stability in a Stylized Two-Country Macroeconomic Model," IMK Working Paper 03-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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