Hostname: page-component-cd9895bd7-q99xh Total loading time: 0 Render date: 2024-12-27T19:13:02.413Z Has data issue: false hasContentIssue false
  • English
  • Français

AN ANALYTICAL AND NUMERICAL SEARCH FOR BIFURCATIONS IN OPEN ECONOMY NEW KEYNESIAN MODELS

Published online by Cambridge University Press:  14 October 2014

William A. Barnett  and
Unal Eryilmaz
William A. Barnett*
Affiliation:
University of Kansas and Center for Financial Stability
Unal Eryilmaz*
Affiliation:
Prime Ministry of Turkey
*
Address correspondence to: William A. Barnett, Department of Economics, University of Kansas, Lawrence, KS 66045, USA; e-mail: [email protected]
Unal Eryilmaz, Prime Ministry of Turkey, Kanunlar ve Kararlar Genel Mudurlugu, Basbakanlik, Vekaletler Cad., 06573 Bakanlikar, Ankara, Turkey; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

We explore bifurcation phenomena in the open-economy New Keynesian model developed by Galí and Monacelli in 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.

Keywords

StabilityBifurcationOpen EconomyNew KeynesianDeterminacyMacroeconomicsDynamic Systems
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 2: Complexity in Economic Systems , March 2016 , pp. 482 - 503
Copyright
Copyright © Cambridge University Press 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Airaudo, M. and Zanna, L.-F. (2005) Interest Rate Rules, Endogenous Cycles and Chaotic Dynamics in Open Economies. Collegio Carlo Alberto working paper 171.Google Scholar
Barnett, W.A., Banerjee, S., Duzhak, E., and Gopalan, R. (2011) Bifurcation analysis of Zellner's Marshallian macro model. Journal of Economic Dynamics and Control 9 (35), 1577–1585.Google Scholar
Barnett, W.A. and Duzhak, E.A. (2008) Non-robust dynamic inferences from macroeconometric models: Bifurcation of confidence regions. Physica A 387 (15), 3817–3825.CrossRefGoogle Scholar
Barnett, W.A. and Duzhak, E.A. (2010) Empirical assessment of bifurcation regions within New Keynesian models. Economic Theory 45, 99–128.CrossRefGoogle Scholar
Barnett, W.A. and Eryilmaz, Unal (2013) Hopf bifurcation in the Clarida, Gali, and Gertler model. Economic Modelling 31, 401–404.CrossRefGoogle Scholar
Barnett, W.A. and Ghosh, Taniya (2013) Bifurcation analysis of an endogenous growth model. Journal of Economic Asymmetries 10 (1), 53–64.CrossRefGoogle Scholar
Barnett, W.A. and Ghosh, Taniya (in press) Stability analysis of Uzawa–Lucas endogenous growth model. Economic Theory Bulletin.Google Scholar
Barnett, W.A. and He, Y. (1999) Stability analysis of continuous time macroeconometric systems. Studies in Nonlinear Dynamics and Econometrics 3 (4), 169–188.Google Scholar
Barnett, W.A. and He, Y. (2002) Stabilization policy as bifurcation selection: Would stabilization policy work if the economy really were unstable? Macroeconomic Dynamics 6, 713–747.CrossRefGoogle Scholar
Barnett, W.A. and He, Y. (2006) Singularity bifurcations. Journal of Macroeconomics 28 (1), 5–22.Google Scholar
Bergstrom, A.R., Nowman, K.B., and Wymer, C.R. (1992) Gaussian estimation of a second order continuous time macroeconometric model of the United Kingdom. Economic Modelling 9, 313–352.CrossRefGoogle Scholar
Bullard, J. and Mitra, K. (2002) Learning about monetary policy rules. Journal of Monetary Economics 49 (6), 1105–1129.CrossRefGoogle Scholar
Clarida, R., Gali, J., and Gertler, M. (2002) A simple framework for international monetary policy analysis. Journal of Monetary Economics 49 (5), 879–904.CrossRefGoogle Scholar
Demirel, U.D. (2010) Macroeconomic stabilization in developing economies: Are optimal policies procyclical? European Economic Review 54 (3), 409–428.CrossRefGoogle Scholar
Galí, J. and Monacelli, T. (2005) Monetary policy and exchange rate volatility in a small open economy. Review of Economic Studies 72 (3), 707–734.CrossRefGoogle Scholar
Gandolfo, G. (1996) Economic Dynamics, 3rd ed.New York: Springer-Verlag.Google Scholar
Govaerts, W., Kuznetsov, Y.A., Ghaziani, R. Khoshsiar, and Meijer, H.G.E. (2008) CL_MatContM: A Toolbox for Continuation and Bifurcation of Cycles of Maps. Available at http://www.matcont.ugent.be/doc_cl_matcontM.pdf.Google Scholar
Grandmont, J.M. (1985) On endogenous competitive business. Econometrica 53, 995–1045.CrossRefGoogle Scholar
Leeper, E. and Sims, C. (1994) Toward a modern macro model usable for policy analysis. NBER Macroeconomics Annual 9, 81–117.CrossRefGoogle Scholar
Leith, C., Moldovan, I., and Rossi, R. (2009) Optimal Monetary Policy in a New Keynesian Model with Habits in Consumption. European Central Bank working paper 1076.CrossRefGoogle Scholar
Schettkat, R. and Sun, R. (2009) Monetary policy and European unemployment. Oxford Review of Economic Policy 25 (1), 94–108.CrossRefGoogle Scholar
Taylor, John B. (1993) Discretion versus policy rules in practice. Carnegie-Rochester Conferences Series on Public Policy 39 (December), 195–214.CrossRefGoogle Scholar
Walsh, E. Carl (2003) Monetary Theory and Policy, 2nd ed.Cambridge, MA: MIT Press.Google Scholar
Wen, G., Xu, D., and Han, X. (2002) On creation of Hopf bifurcations in discrete-time nonlinear systems. Chaos 12 (2), 350–355.CrossRefGoogle ScholarPubMed