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Is There Chaos in the World Economy? A Nonparametric Test Using Consistent Standard Errors

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Author Info
Mototsugu Shintani () (Department of Economics, Vanderbilt Unversity)
Oliver Linton () (London School of Economics)

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Abstract

A positive Lyapunov exponent is one practical definition of chaos. We develop a formal test for chaos in a noisy system based on the consistent standard errors of the nonparametric Lyapunov exponent estimators. When our procedures are applied to international real output series, the hypothesis of the positive Lyapunov exponent is significantly rejected in many cases. One possible interpretation of this result is that the traditional exogenous models are better able to explain business cycle fluctuations than is the chaotic endogenous approach. However, our results are subject to a number of caveats, in particular our results could have been influenced by small sample bias, high noise level, incorrect filtering, and long memory of the data.

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File URL: http://www.vanderbilt.edu/Econ/wparchive/workpaper/vu01-w11.pdf
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File Function: Revised version, 2001
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Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number 0111.

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Date of creation: Sep 2000
Date of revision: Jun 2001
Handle: RePEc:van:wpaper:0111

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Related research
Keywords: Artificial neural networks; business cycles; local polynomial regression; nonlinear dynamics; nonlinear time series;

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Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Elena Olmedo & Ricardo Gimeno & Lorenzo Escot & Ruth Mateos, 2007. "Convergencia y Estabilidad de los Tipos de Cambio Europeos: Una Aplicación de Exponentes de Lyapunov," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 44(129), pages 91-108. [Downloadable!]
  2. Oliver Linton & Mototsugu Shintani, 2002. "Nonparametric Neutral Network Estimation of Lyapunov Exponents and a Direct Test for Chaos," STICERD - Econometrics Paper Series /2002/434, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
    Other versions:
  3. Simón Sosvilla-Rivero & Fernando Fernández-Rodriguez & Julián Andrada-Félix, 2005. "Testing chaotic dynamics via Lyapunov exponents," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(7), pages 911-930. [Downloadable!]
    Other versions:
  4. Hommes, C.H. & Manzan, S., 2005. "Testing for Nonlinear Structure and Chaos in Economic Time Series: A Comment," CeNDEF Working Papers 05-14, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance. [Downloadable!]
  5. Mototsugu Shintani, 2003. "A Nonparametric Measure of Convergence Toward Purchasing Power Parity," Levine's Bibliography 506439000000000172, UCLA Department of Economics. [Downloadable!]
    Other versions:
  6. Cars Hommes & Sebastiano Manzan, 2006. "Testing for Nonlinear Structure and Chaos in Economic Time. A Comment," Tinbergen Institute Discussion Papers 06-030/1, Tinbergen Institute. [Downloadable!]
  7. Vitaliy Vandrovych, 2005. "Study of Nonlinearities in the Dynamics of Exchange Rates: Is There Any Evidence of Chaos?," Computing in Economics and Finance 2005 234, Society for Computational Economics. [Downloadable!]
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