Bifurcations in Continuous-Time Macroeconomic Systems

William Barnett and Yijun He
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Yijun He: Washington University in St.Louis

No 201226, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: There has been increasing interest in continuous-time macroeconomic models. This research investigates bifurcation phenomena in a continuous-time model of the United Kingdom. We choose a particularly well-regarded continuous-time macroeconometric model to assure the empirical and potential policy relevance of our results. In particular, we use the Bergstrom, Nowman and Wymer continuous-time dynamic macroeconometric model of the UK economy. We find that bifurcations are important with this model for understanding the dynamic properties of the system and for determining which parameters are the most important to those dynamic properties. We have discovered that both saddle-node bifurcations and Hopf bifurcations indeed exist with this model within the model's region of plausible parameter settings. We find that the existence of Hopf bifurcations is particularly useful since those bifurcations may provide explanations for some cyclical phenomena in the macroeconomy. We further design numerical algorithms to locate the bifurcation boundaries, which we display in three dimensional color bifurcation diagrams. A notable and perhaps surprising fact is that both types of bifurcations can coexist with this well-regarded UK model - in the same neighborhood of the parameter space.

Pages: 24 pages
Date: 2012-09, Revised 2012-09
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Related works:
Working Paper: Bifurcations in Continuous-Time Macroeconomic Systems (1998)
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