Effects of Uncertainty Shocks on Household Consumption and Working Hours: A Fuzzy Cognitive Map-Based Approach

Yeonggyu Yun and Hye-Young Jung
Additional contact information
Yeonggyu Yun: Department of Economics, Seoul National University, Seoul 08826, Korea
Hye-Young Jung: Department of Applied Mathematics, Hanyang University, Gyeonggi 15588, Korea

Mathematics, 2020, vol. 8, issue 6, 1-13

Abstract: This paper aims to model an individual’s decision-making process in relation to macroeconomic dynamics that involve a large number of variables, which might inflict dimensionality issue in empirical analysis. We employ the fuzzy cognitive map (FCM) for this purpose, and present a parsimonious approach in assessing the impacts of uncertainty shocks on individual households by constructing FCM where households adjust their consumption and working hours in response to changes in exogenous economic uncertainty. We employ FCM to analyze how uncertainty shocks affect the households’ consumption, working hours, and income sources. We further conduct simulations to examine roles of expansionary fiscal policy in alleviating the negative impacts of uncertainty shocks. Our simulations yield similar results as compared to the existing literature on the impacts of uncertainty shocks. We suggest a hybrid algorithm of constructing FCM, and hence demonstrate the extensibility of FCM in analyzing complex macroeconomic systems.

Keywords: consumption; fuzzy cognitive map; nonlinear Hebbian learning; uncertainty shock; working hours (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2227-7390/8/6/889/pdf (application/pdf)
https://www.mdpi.com/2227-7390/8/6/889/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jmathe:v:8:y:2020:i:6:p:889-:d:366122

Access Statistics for this article

Mathematics is currently edited by Ms. Emma He

More articles in Mathematics from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().