Noise-induced transitions in a stochastic Goodwin-type business cycle model

Jochen Jungeilges and Tatyana Ryazanova

Structural Change and Economic Dynamics, 2017, vol. 40, issue C, 103-115

Abstract: We motivate and specify a stochastic Goodwin-type business cycle model. Our analysis focusses on a subset of the parameter space where several attractors coexist. Applying a semi-numerical approach based on the stochastic sensitivity function and confidence domains due to Milstein and Ryashko (1995), we study random transitions between stable attractors in the context of the Goodwin-type economy embedded in an uncertain environment. Relying on a mix of analytical considerations and simulations we demonstrate that under weak noise levels regime switching is a prominent feature in the presence of low saving rates. Moreover, we explain how increased uncertainty can induce an essentially unpredictable income process out of an apparently stable high-income level situation. All dynamic phenomena are explained in terms of key concepts constituting the stochastic sensitivity function method.

Keywords: Van-der-Pol oscillator; Co-existing attractors; Stochastic sensitivity analysis; Noise induced random transitions (search for similar items in EconPapers)
JEL-codes: C02 C61 C63 E3 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:40:y:2017:i:c:p:103-115

DOI: 10.1016/j.strueco.2017.01.003

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