Saddlepoint Dynamics with an Endogenous Root of Convergence

Omar Chisari

No 3, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: This paper reconsiders local stability in the saddlepoint sense. Market time and the root of convergence are determined endogenously using partial differential equations; consequently, there is not need of the resort to any deus-ex-machina dynamics to justify an initial jump in one of the economic variables. It is shown that the regions of stability are wider than those currently admitted and that, in some cases, there is a justification for the theoretical ambiguity regarding which variable is supposed to jump. Two examples (sluggish adjustment of salaries and exchange rate dynamics) are used to illustrate the methodology.

Date: 2000-08-01
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