Hopf bifurcation and chaos in macroeconomic models with policy lag

Xiaofeng Liao, Chuandong Li and Shangbo Zhou

Chaos, Solitons & Fractals, 2005, vol. 25, issue 1, 91-108

Abstract: In this paper, we consider the macroeconomic models with policy lag, and study how lags in policy response affect the macroeconomic stability. The local stability of the nonzero equilibrium of this equation is investigated by analyzing the corresponding transcendental characteristic equation of its linearized equation. Some general stability criteria involving the policy lag and the system parameter are derived. By choosing the policy lag as a bifurcation parameter, the model is found to undergo a sequence of Hopf bifurcation. The direction and stability of the bifurcating periodic solutions are determined by using the normal form theory and the center manifold theorem. Moreover, we show that the government can stabilize the intrinsically unstable economy if the policy lag is sufficiently short, but the system become locally unstable when the policy lag is too long. We also find the chaotic behavior in some range of the policy lag.

Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:25:y:2005:i:1:p:91-108

DOI: 10.1016/j.chaos.2004.09.075

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