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Output volatility and savings in a stochastic Goodwin economy

Author

Listed:
  • Jochen Jungeilges

    (University of Agder
    Ural Federal University)

  • Tatyana Ryazanova

    (Ural Federal University)

Abstract

Both the public and the academic discourse of the post-crisis era have produced most controversial views concerning adequate national savings rates. We add to this discussion by analyzing the role of the savings rate for the dynamics of an economy embedded in a turbulent environment. To this end we study the dynamics of a stochastic Goodwin-type business cycle model using a mix of analytical- and simulation techniques. Focussing on a region of the parameter space that exhibits multi-stability, we apply the stochastic sensitivity function technique and Lyapunov exponents to scrutinize the dynamics of the stochastic economic system. We find that the savings rate affects the sensitivity of the economic system, as well as the distribution of economic states. The sensitivity of the system is inversely related to the level of the savings rate. Specifically, we demonstrate that high volatility phases of the cycle vary as the savings rate is changed. For low (high) levels of the savings rate the stochastic Goodwin economy will remain relatively often in sensitive (robust) states. Our theoretical investigation suggests that strategies involving reasonably high national savings rates might help to avoid the negative welfare implications of sensitive and even chaotic income dynamics along the cycle.

Suggested Citation

  • Jochen Jungeilges & Tatyana Ryazanova, 2018. "Output volatility and savings in a stochastic Goodwin economy," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 8(3), pages 355-380, December.
  • Handle: RePEc:spr:eurase:v:8:y:2018:i:3:d:10.1007_s40822-017-0088-7
    DOI: 10.1007/s40822-017-0088-7
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    Cited by:

    1. Jungeilges, Jochen & Ryazanova, Tatyana, 2019. "Transitions in consumption behaviors in a peer-driven stochastic consumer network," Chaos, Solitons & Fractals, Elsevier, vol. 128(C), pages 144-154.
    2. Hejie Zhang & Huiming Lv & Shenghau Lin, 2021. "Financial Development, Saving Rates, and International Economic Volatility: A Simple Model," Mathematics, MDPI, vol. 9(16), pages 1-20, August.

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    More about this item

    Keywords

    Non-linear oscillator; Stochastic perturbation; Co-existing attractors; Stochastic sensitivity analysis; Lyapunov exponent; Income volatility;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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