Barnett, William and Eryilmaz, Unal (2012): An analytical and numerical search for bifurcations in open economy New Keynesian models.
Download (524kB) | Preview
We explore bifurcation phenomena in the open-economy New Keynesian model developed by Gali and Monacelli (2005). We find that the open economy framework brings about more complex dynamics, along with a wider variety of qualitative behaviors and policy responses. Introducing parameters related to the open economy structure affects the values of bifurcation parameters and changes the location of bifurcation boundaries. As a result, the stratification of the confidence region, as previously seen in closed-economy New Keynesian models, remains an important research and policy risk to be considered in the context of the open-economy New Keynesian functional structures. In fact, econometrics and optimal policy design become more complex within an open economy. Dynamical inferences need to be qualified by the risk of bifurcation boundaries crossing the confidence regions. Policy design needs to take into consideration that a change in monetary policy can produce an unanticipated bifurcation, without adequate prior econometrics research.
|Item Type:||MPRA Paper|
|Original Title:||An analytical and numerical search for bifurcations in open economy New Keynesian models|
|Keywords:||stability; bifurcation; open economy; New Keynesian; determinacy; macroeconomics; dynamic systems|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C62 - Existence and Stability Conditions of Equilibrium
|Depositing User:||William A. Barnett|
|Date Deposited:||01. Aug 2012 19:38|
|Last Modified:||22. Aug 2015 23:11|
Airaudo, M. and L.-F. Zanna (2005). Interest rate rules, endogenous cycles and chaotic dynamics in open economies. Collegio Carlo Alberto Working Papers, No: 171, December.
Barnett W.A. and E.A. Duzhak (2008). Non-robust dynamic inferences from macroeconometric models: Bifurcation of confidence regions. Physica A, Vol 387, No 15, June, 3817-3825,.
Barnett W.A. and E.A. Duzhak (2010). Empirical assessment of bifurcation regions within New Keynesian models. Economic Theory, Vol. 45, 99–128.
Barnett, W.A. and Y. He (1999). Stability analysis of continuous time macroeconometric systems. Studies in Nonlinear Dynamics and Econometrics, 3(4), 169-188.
Barnett, W.A. and Y. He,(2002). Stabilization policy as bifurcation selection: Would stabilization policy work if the economy really were unstable? Macroeconomic Dynamics, 6, 713–747.
Barnett, W.A. and Y. He (2006). Singularity bifurcations. Journal of Macroeconomics, Vol 28, Issue 1, March , 5-22,.
Barnett, W. A., S. Banerjee, E. Duzhak, and R. Gopalan (2011). Bifurcation analysis of Zellner’s Marshallian macro model, Journal of Economic Dynamics and Control 9(35), 1577-1585.
Bergstrom, A.R., Nowman, K.B., and C.R. Wymer (1992). Gaussian estimation of a second order continuous time macroeconometric model of the United Kingdom. Economic Modelling 9, 313-352.
Bullard, J. and K. Mitra (2002). Learning about monetary policy rules. Journal of Monetary Economics, Vol. 49, Issue 6, September, 1105-1129.
Demirel, U. D. (2010). Macroeconomic stabilization in developing economies: Are optimal policies procyclical? European Economic Review, Vol. 54, Issue 3, April, 409-428.
Galí, J. and T. Monacelli (2005). Monetary policy and exchange rate volatility in a small open economy. Review of Economic Studies, Vol. 72, No 3, July.
Gandolfo, G. (1996). Economic Dynamics. 3rd Edition, New York and Heidelburg, Springer-Verlag.
Govaerts W., Kuznetsov Y. A., R. Khoshsiar G. and H.G.E Meijer (2008). CL_MatContM: A toolbox for continuation and bifurcation of cycles of maps, March. http://www.matcont.ugent.be/doc_cl_matcontM.pdf
Grandmont, J.M. (1985). On endogenous competitive business. Econometrica, Vol.53, 995-1045.
Leeper, E. and C. Sims (1994). Toward a modern macro model usable for policy analysis. NBER Macroeconomics Annual, 81-117.
Leith, C., Moldovan, I. and R. Rossi (2009). Optimal monetary policy in a New Keynesian model with habits in consumption. European Central Bank Working Paper Series, No 1076, July.
Schettkat, R. and R. Sun (2009). Monetary policy and European unemployment. Oxford Review of Economic Policy, Vol. 25, Issue 1, 94-108.
Taylor , John B. (1993). Discretion versus policy rules in practice. Carnegie-Rochester Conferences Series on Public Policy, 39, December, 195-214.
Walsh, E. Carl (2003). Monetary Theory and Policy, Cambridge, MA, MIT Press, Second Ed.
Wen G., Xu, D., and X. Han (2002). On creation of Hopf bifurcations in discrete-time nonlinear systems. Chaos, Vol. 12, Issue 2, 350-355.
Available Versions of this Item
- An analytical and numerical search for bifurcations in open economy New Keynesian models. (deposited 01. Aug 2012 19:38) [Currently Displayed]