TY - JOUR

T1 - Macroeconomic model with monetary and fiscal policy and externality

T2 - 6th IFAC Conference on Analysis and Control of Chaotic Systems CHAOS 2021

AU - Alexeeva, T. A.

AU - Kuznetsov, N. V.

AU - Mokaev, T. N.

AU - Polshchikova, I. A.

N1 - Publisher Copyright: Copyright © 2021 The Authors. This is an open access article under the CC BY-NC-ND license (https://creativecommons.org/licenses/by-nc-nd/4.0/)

PY - 2021

Y1 - 2021

N2 - Irregular fluctuations in economy lead to unpredictable effects and disrupt its stable functioning. Various tools could be used to stabilize irregular dynamics in economic models. For example, to introduce control into the model as an external function, as well as to take into account the internal characteristics of economic agents in the economy under consideration, we consider agents that use the variables that are under their control to achieve optimum, by minimizing or maximizing cost, profit, or welfare function. However, optimal behavior in economics does not necessarily lead to simple model dynamics. It is therefore important to find the conditions for and understand the mechanism of emergence of complex dynamics. We study two New Keynesian models, including one with externalitites, in continuous-time under different monetary and fiscal policy regimes, which represent the economy where the economic agents solve constrained optimization problems. We show that in case of explosive equilibrium dynamics, limit cycles or more complicated attracting sets could appear, including chaotic attractors of various nature. In this case it is possible to control irregular dynamics, including by adjusting policy parameters that serve as bifurcation parameters, in order to alleviate the implied economic uncertainty and bring agents' expectations in line with the intended steady state.

AB - Irregular fluctuations in economy lead to unpredictable effects and disrupt its stable functioning. Various tools could be used to stabilize irregular dynamics in economic models. For example, to introduce control into the model as an external function, as well as to take into account the internal characteristics of economic agents in the economy under consideration, we consider agents that use the variables that are under their control to achieve optimum, by minimizing or maximizing cost, profit, or welfare function. However, optimal behavior in economics does not necessarily lead to simple model dynamics. It is therefore important to find the conditions for and understand the mechanism of emergence of complex dynamics. We study two New Keynesian models, including one with externalitites, in continuous-time under different monetary and fiscal policy regimes, which represent the economy where the economic agents solve constrained optimization problems. We show that in case of explosive equilibrium dynamics, limit cycles or more complicated attracting sets could appear, including chaotic attractors of various nature. In this case it is possible to control irregular dynamics, including by adjusting policy parameters that serve as bifurcation parameters, in order to alleviate the implied economic uncertainty and bring agents' expectations in line with the intended steady state.

KW - Bifurcation

KW - Chaotic economy

KW - Fiscal and monetary policies

KW - Global indeterminacy

KW - Limit cycle

KW - New Keynesian model

KW - Nonlinear dynamics

KW - Optimal control

UR - http://www.scopus.com/inward/record.url?scp=85120870450&partnerID=8YFLogxK

U2 - 10.1016/j.ifacol.2021.11.021

DO - 10.1016/j.ifacol.2021.11.021

M3 - Conference article

AN - SCOPUS:85120870450

VL - 54

SP - 26

EP - 31

JO - IFAC-PapersOnLine

JF - IFAC-PapersOnLine

SN - 2405-8971

IS - 17

Y2 - 27 September 2021 through 29 September 2021

ER -