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Chaos in economic models with exogenous shocks

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  • Akhmet, Marat
  • Akhmetova, Zhanar
  • Fen, Mehmet Onur

Abstract

We investigate the generation of chaos in economic models through exogenous shocks. The perturbation is formulated as a pulse function where either values or instants of discontinuity are chaotically behaved. We provide a rigorous proof of the existence of chaos in the perturbed model. The analytical results are applied to Kaldor–Kalecki-type models of the aggregate economy subject to export and rainfall shocks, respectively. Simulations are used to demonstrate the emergence and the control of chaos. Our results shed light on a novel source of chaos in economic models and have important implications for policy-making.

Suggested Citation

  • Akhmet, Marat & Akhmetova, Zhanar & Fen, Mehmet Onur, 2014. "Chaos in economic models with exogenous shocks," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 95-108.
    • Handle: RePEc:eee:jeborg:v:106:y:2014:i:c:p:95-108
    DOI: 10.1016/j.jebo.2014.06.008
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    More about this item

    Keywords

    Exogenous shocks; Pulse functions; Devaney chaos; Period-doubling cascade; Control of chaos;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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