Stable Periodic Economic Cycles from Controlling

Ruedi Stoop ()
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Ruedi Stoop: ETHZ/University of Zürich

Chapter Chapter 15 in Nonlinearities in Economics, 2021, pp 209-244 from Springer

Abstract: Abstract When a system becomes unstable or noise becomes excessive, often regulations of the form of limiters (barriers obstructing excursion into undesired areas of the phase space) are imposed. It is hoped that by the influence of this element, the system can be calmed and its behaviour can be optimised. In what follows below, we consider a simple noisy nonlinear economics model that self-organises towards criticality. We demonstrate that the inherent effect of limiters is the emergence of stable cycles and that limiters need to be implemented with care in order to obtain an optimised system response. In particular, the implementation of the limiter around the maximal system response has generally a suboptimal effect, whereas the placement of the limiter in the vicinity of a period-one cycle will generally yield the optimal effect. We also show that, as a downside of the proposed approach, in order to control on period-one cycles, generally strong interventions are required. In democratic countries, a transparent control policy would therefore be an indispensable for its implementation. The discussed framework may prove helpful for this purpose.

Keywords: Chaos; Controlling; Cycles; Nonlinear systems (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:dymchp:978-3-030-70982-2_15

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DOI: 10.1007/978-3-030-70982-2_15

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