 Saddle Cycles: Solving Rational Expectations Models Featuring Limit Cycles (or Chaos) Using Perturbation MethodsNo 18-11, Carleton Economic Papers from Carleton University, Department of Economics Abstract: Unlike their linear counterparts, non-linear models of the business cycle can generate sustained economic fluctuations even in the absence of shocks (e.g., via limit cycles or chaos). A popular approach to solving non-linear models is the use of perturbation methods. I show that, as typically implemented, these methods are generally incapable of finding solutions that feature limit cycles or chaos, a fact that does not appear to be recognized in the existing literature. Standard algorithms only seek solutions that feature converge to the steady state, which is stronger than the standard definitional requirement that a solution simply cannot explode. Because of this, in estimation exercises any parameterization that involves limit cycles would typically (and incorrectly) be discarded. I propose a modification to standard algorithms that does not impose the overly strong requirement that solutions involve convergence. Keywords: Dynamic equilibrium economies; Computational methods; Non-linear solution methods; Limit cycles; Chaos (search for similar items in EconPapers) Published: Carleton Economic Papers Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:car:carecp:18-11 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in Carleton Economic Papers from Carleton University, Department of Economics C870 Loeb Building, 1125 Colonel By Drive, Ottawa Ontario, K1S 5B6 Canada. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.