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First-passage time for stability analysis of the Kaldor model

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  • Chu, Peter C.

Abstract

Every economic model should include an estimate of its stability and predictability. A new measure, the first passage time (FPT) which is defined as the time period when the model error first exceeds a pre-determined criterion (i.e., the tolerance level), is proposed here to estimate the model predictability. A theoretical framework is developed to determine the mean and variance of FPT. The classical Kaldor model is taken as an example to show the robustness of using FPT as a quantitative measure for identifying the model stability.

Suggested Citation

  • Chu, Peter C., 2006. "First-passage time for stability analysis of the Kaldor model," Chaos, Solitons & Fractals, Elsevier, vol. 27(5), pages 1355-1368.
    • Handle: RePEc:eee:chsofr:v:27:y:2006:i:5:p:1355-1368
    DOI: 10.1016/j.chaos.2005.04.115
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    References listed on IDEAS

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    1. Semmler, Willi, 1986. "On nonlinear theories of economic cycles and the persistence of business cycles," Mathematical Social Sciences, Elsevier, vol. 12(1), pages 47-76, August.
    2. W. W. Chang & D. J. Smyth, 1971. "The Existence and Persistence of Cycles in a Non-linear Model: Kaldor's 1940 Model Re-examined," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(1), pages 37-44.
    3. Varian, Hal R, 1979. "Catastrophe Theory and the Business Cycle," Economic Inquiry, Western Economic Association International, vol. 17(1), pages 14-28, January.
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    Cited by:

    1. Januário, Cristina & Grácio, Clara & Duarte, Jorge, 2009. "Measuring complexity in a business cycle model of the Kaldor type," Chaos, Solitons & Fractals, Elsevier, vol. 42(5), pages 2890-2903.

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