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Controlling Chaotic Fluctuations through Monetary Policy

Author

Listed:
  • Asano Takao

    (Faculty of Economics, Okayama University, Tsushimanaka 3-1-1, Kita-ku, Okayama 700-8530, Japan)

  • Shibata Akihisa

    (Institute of Economic Research, Kyoto University, Yoshida, Sakyo-ku, Kyoto 606-8501, Japan)

  • Yokoo Masanori

    (Faculty of Economics, Okayama University, Tsushimanaka 3-1-1, Kita-ku, Okayama 700-8530, Japan)

Abstract

This paper applies the chaos control method (the OGY method) proposed by Ott, E., C. Grebogi, and J. A. Yorke. (1990. “Controlling Chaos.” Physical Review Letters 64: 1196–9) to policy-making in macroeconomics. This paper demonstrates that the monetary equilibrium paths in a discrete-time, two-dimensional overlapping generations model exhibit chaotic fluctuations depending on the money supply rate and the elasticity of substitution between capital and labor under the assumption of the constant elasticity of substitution (CES) production function. We also show that the chaotic fluctuations can be stabilized by controlling the money supply rate by using the OGY method and that even when the OGY method does not work due to periodic attractors, adding moderate stochastic shocks to the model can successfully stabilize the economy.

Suggested Citation

  • Asano Takao & Shibata Akihisa & Yokoo Masanori, 2025. "Controlling Chaotic Fluctuations through Monetary Policy," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 29(1), pages 53-69.
    • Handle: RePEc:bpj:sndecm:v:29:y:2025:i:1:p:53-69:n:1004
    DOI: 10.1515/snde-2023-0015
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