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    Stabilization Policy as Bifurcation Selection  Would Stabilization Policy Work if the Economy Really Were Unstable?

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    Issue Date
    2002-11-01
    Author
    Barnett, William A.
    He, Yijun
    Publisher
    Cambridge University Press
    Type
    Article
    Article Version
    Scholarly/refereed, author accepted manuscript
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    Abstract
    Taken literally, the concept of “stabilization policy” implicitly assumes that the macroeconomy is unstable without imposition of a policy. Hence, selection of a “stabilization policy” can be viewed as selection of a policy to bifurcate the system from an unstable to a stable operating regime. The literature on dynamics of high-dimensional systems suggests that successful bifurcation selection is challenging. As an experiment to investigate this point of view, we use the continuous-time UK dynamic macroeconometric model. Under assumptions designed to be most favorable to stabilization policy, we find that policies that would produce successful bifurcation are very complicated. We also find that less complicated policies based upon reasonable economic intuition can be counterproductive, since such policies can contract the size of the stable subset of the parameter space. In fact, an economy that is dynamically stable without policy, but subject to stochastic shocks, could be bifurcated to instability with imposition of a poorly designed “stabilization” policy.
    Description
    This is the author's final draft of an article which is available in its originally published version from: http://dx.doi.org/10.1017/S1365100502020023
    URI
    http://hdl.handle.net/1808/13130
    DOI
    https://doi.org/10.1017/S1365100502020023
    Collections
    • Distinguished Professors Scholarly Works [918]
    • Economics Scholarly Works [184]
    Citation
    Barnett, William A. and He, Yijun "Stabilization Policy as Bifurcation Selection:  Would Stabilization Policy Work if the Economy Really Were Unstable?," with Yijun He, Macroeconomic Dynamics, vol 6, no 5, November 2002, pp. 713-747. http://dx.doi.org/10.1017/S1365100502020023

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    Contact KU ScholarWorks
    785-864-8983
    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    785-864-8983

    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    Image Credits
     

     

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