Controlling endogenous fluctuations of human capital investment in an OLG economy

A bifurcation occurs when there is a sudden qualitative or topological change in the behavior of the original system by varying one or more parameters (the bifurcation parameters) of the original system. Bifurcation can cause unacceptable new conditions or instability in the economy system. Its control is done by designing a controller input, thereby achieving desirable dynamical behavior. This paper deals with the control of a bifurcation caused by a rise in information costs in a human capital investment model. By employing the delayed feedback control (DFC) method, unstable fluctuations stemming from the system can be controlled without changing its original properties. In addition, we show the effectiveness and feasibility of the developed methods in the system with explicit functions.     

A dynamic duopoly model with bounded rationality based on constant conjectural variation

In this paper, we construct dynamic models on the basis of constant conjectural variation. Duopolists with dynamic adjustment behavior of bounded rationality have been considered. Numerical simulation is used to illustrate the complexion of models. The existence of equilibrium points and their stability in this nonlinear system are discussed. We study two special cases of symmetry model and Bertrand model with conjectural variation. When the speed of output adjustment changes, a series of complex phenomena including bifurcation, chaos and strange attractors can be observed in our models. We also analyzed the importance of the initial conditions to the system that a tiny variation of the initial value will cause dramatic fluctuations in output.     

Collateral fluctuations in a monetary economy

This paper studies economy-wide fluctuations that occur endogenously in the presence of monetary and real assets. Using a standard monetary search model, we consider an economy in which agents can increase consumption, over and above what their liquid monetary asset holdings would allow, pledging real assets as collateral for monetary loans. It is shown that, if the liquidation value of real assets is below full market value, a stable cyclical equilibrium can emerge in consumption and capital around the unstable steady state. We also provide conditions for the existence of cycles of higher order, chaos and sunspot equilibria.     

Optimal nonlinear income taxation with productive government expenditure

This paper develops an endogenous growth model with a production externality and nonlinear income taxation, and uses it to examine how the fiscal authority devises its nonlinear tax structure from the viewpoint of welfare maximization. It is found that, in the Barro (1990) model, Pareto optimality can be achieved if both policy instruments for the tax scalar and the extent of the tax progressivity/regressivity are set optimally.     

Financial development, liberalization and technological deepening

This paper focuses on examining the effects of financial development and liberalization on knowledge accumulation. The results consistently show that while financial development facilitates the accumulation of new ideas, the implementation of financial reform policies is negatively associated with it. The undesirable effects of financial liberalization are found to operate through the triggering of crises and volatility in the financial system. There is also evidence supporting the hypothesis that financial liberalization reallocates talent from the innovative sector to the financial system, thus retarding technological deepening. Moreover, the findings also suggest that increased R&D activity and the presence of a stronger intellectual property rights protection framework tend to have beneficial effects on knowledge accumulation.     

Endogenous fluctuations in a cournotian monopolistic competition model with free entry and market power variability

The purpose of this article is to show that there is a link between imperfections of competition and occurrence of endogenous fluctuations. We consider a two-sector model in which a perfectly competitive final good sector uses inputs that are produced in a Cournot monopolistic competition market. We show that when inputs are not perfect substitutes, and the depreciation rate of capital is sufficiently small, Neimark bifurcations are susceptible to emerge. This is a consequence of additional variability in the dynamical system generated by the dependence of the markup on the number of firms. This number changes over time because firms can enter and exit the market without costs. Moreover, a fixed cost in the technology ensures that the number of active firms at a given date is finite provided that the elasticity of substitution between inputs is bounded from above.     

Demography and pollution

In this paper, we consider an OG model with endogenous fertility and pollution externalities. We assume that pollution lowers the productivity. In the long run, under dominant income (substitution) effects, a raise in the cost of rearing children, increases (decreases) consumption and decreases (increases) pollution. In the short run, under dominant income effects, a sufficiently low pollution elasticity of labor productivity promotes deterministic cycles through a Hopf bifurcation jointly with expectations-driven fluctuations.     

Sources of exchange rate fluctuations with Taylor rule fundamentals

This paper investigates the sources of exchange rate fluctuations when monetary policy follows a Taylor rule interest rate reaction function. We first present a simple dynamic exchange rate model with Taylor rule fundamentals which is triangular in the long-run impacts of shocks to the output market, the interest rate differential, and the Taylor rule. We then proceed to assess the relative importance of various shocks in exchange rate determination by estimating a structural VAR with long-run identification restrictions based on the triangular structure of the model. We find demand shocks to be less important than in earlier VAR studies, with both supply shocks and nominal shocks explaining a substantial part of real exchange rate fluctuations.     

Multiple equilibria arising from donor’s aid policy in economic development

This paper presents a neoclassical growth model comprising education and child labor with a focus on developing and aid-receiving countries to demonstrate cyclical growth and bifurcation in economic development. The appearance of multiple equilibria has often been attributed to the internal affairs of recipient countries, such as technology in production, subsistence minimum in consumption, and liquidity constraints in investment. The main argument of this paper is that the aid allocation policy employed by donor countries, thereby the motive of aid-providers, leads to divaricated and cyclical development in the recipient countries.     

Self-Selection and Optimal Nonlinear Effluent Charges

This paper proposes an optimal nonlinear effluent-charge system forenvironmental pollution control. This system achieves the first-bestoptimum through a self-selecting mechanism under asymmetric information.The proposed system can also control the level of revenues so as to reducethe excess burden of environmental taxation, and discriminate among thepolluters. The paper also compares this system with the conventional lineareffluent-charge system and discusses some economic implications ofimplementing the system.     

Strategic network formation through peering and service agreements

We introduce a game theoretic model of network formation in an effort to understand the complex system of business relationships between various Internet entities (e.g., Autonomous Systems, enterprise networks, residential customers). In our model we are given a network topology of nodes and links where the nodes act as the players of the game, and links represent potential contracts. Nodes wish to satisfy their demands, which earn potential revenues, but may have to pay their neighbors for links incident to them. We incorporate some of the qualities of Internet business relationships, including customer–provider and peering contracts. We show that every Nash equilibrium can be represented by a circulation flow of utility with certain constraints. This allows us to prove bounds on the prices of anarchy and stability. We also focus on the quality of equilibria achievable through centralized incentives.     

On a master-slave Bertrand game model

A master-slave Bertrand game model is proposed for upstream and downstream monopolies owned by different parties, in which the upstream monopolist's output is used as the main factor of production by the downstream monopolist who is a small purchaser of the upstream monopolist's output. The bifurcation of the Bertrand-Nash equilibrium is analyzed with Schwarzian derivative. Numerical simulations are employed to show the model's complex dynamics by means of the largest Lyapunov exponents (LLEs), bifurcation, time series diagrams and phase portraits. With the modified straight-line stabilization method, chaos control is used to improve the aggregate profits of the two oligopolists. Lastly the welfare impacts of price fluctuations and chaos controls are briefly discussed.     

Are small employers more cyclically sensitive? Evidence from Brazil

An important issue facing policymakers is the degree to which fluctuations in economic activity affect employment in large and small businesses across sectors and regions. This issue is particularly relevant for developing countries as it matters for the understanding of the labour market dynamics, and for devising national, sectoral, and regional labour policies that aim at dampening employment fluctuations, particularly during recessions. Using a unique monthly dataset of 27 states and eight industries from 2000:1 to 2009:7, this paper evaluates the sensitivity of businesses of different sizes to business cycle conditions in Brazil. The behaviour of the difference in employment growth rates between large and small firms is counter-cyclical and suggests that small firms are more sensitive to business cycle conditions. In addition, the SVAR impulse response analysis suggests the existence of the effect of small firms hiring cheaply from unemployment proportionally more than large ones. On the other hand, credit constraints seem to hit small firms harder and help to explain the empirical regularity that small firms are more cyclically sensitive than large ones for the Brazilian case.     

Long-term recurrence patterns in the late 2000 economic crisis: Evidences from entropy analysis of the Dow Jones index

The depth (4.5% US GDP decline and 9.5% stable unemployment) and duration (more than two years) of the present global economic recession have suggested to many researchers and practitioners to think that it is singular relative to previous recession that occurred in the aftermath of the World War II. It has been argued that the singularity of the late 2000 crises arises from non-precedent components, such as globalization and a dominant financial system equipped with exotic instruments (e.g., derivatives) designed from highly specialized mathematical theories. This paper uses the historic (1928–2010) Dow Jones index analyzed with informational entropy methods to show the presence of recurrent cycles with dominant periods of 4.5 and 22 years. For time series, entropy is a measure of the diversity of patterns for given time scales. In this form, the higher the entropy, the more complex the underlying system dynamics. It is shown that the present economic downturn coincides with the occurrence of a 22-year cycle in the entropy dynamics of the Dow Jones index. It suggests that the crisis is not singular, but its origin can be also explained from recurrent long-term patterns. Implications of the empirical results for the evolution of the late 2000 crisis and the potential aftermath courses of the global economy are discussed.     

Noisy information, interest rate shocks and the Great Moderation

In this paper we evaluate the hypothesis that the Great Moderation is partly the result of a less activist monetary policy. We simulate a New Keynesian model in which the central bank can only observe a noisy estimate of the output gap and find that the less pronounced reaction of the Federal Reserve to output gap fluctuations since 1979 can account for a substantial part of the reduction in the standard deviation of GDP associated with the Great Moderation. Our simulations are consistent with the empirically documented smaller magnitude and impact of interest rate shocks since the early 1980s.     

Effects of different environmental regulations and their heterogeneity on air pollution control in China

This study endeavors to explore the impact of different environmental regulations and their heterogeneity on air pollution control in China. By employing a slacks-based measure of directional distance function model, considering undesirable outputs, the efficiency of air pollution control of China’s 30 provinces during 2001–2014 is evaluated. The estimates indicate that the efficiency of air pollution control is fluctuating, and there is obvious regional differences. By using provincial-level panel data and panel threshold models, empirical results show that: (1) There is a nonlinear relationship between environmental regulation and air pollution control efficiency, and it can be positively correlated, but it is constrained by the stringency of regulation: there is a single threshold for formal (command-and-control (CAC) and market-based) regulation, while there is a double threshold for informal regulation. (2) Different environmental regulations have different governance effects. Compared with CAC regulation, market regulation can attract more attention of enterprises. (3) It may be ineffective to expect informal regulation to improve the air pollution control efficiency. Therefore, in order to achieve real sustainable development, the government should set up reasonable regulation stringency and optimize the combination of regulation tools.

     

Wealth distribution and output fluctuations

We explore the link between wealth inequality and output fluctuations in a general two-sector neoclassical growth model with endogenous labor and heterogeneous agents. When agents have homogeneous CRRA preferences and individual wealth is Pareto distributed, a sufficiently large rise in the Gini index typically leads to an increase in endogenous fluctuations of output. For general economies, we show that under plausible conditions on the fundamentals, wealth inequality is still a destabilizing factor.     

(S,s) inventory dynamics and self-organized criticality

This paper proposes a new model of self-organized criticality in order to explain large fluctuations of aggregate production in an (S,s) economy. It is shown that the inventory distribution in an (S,s) economy always converges to a unique steady state, and that aggregate production exhibits a peculiar instability at the steady state: the propagation effect of a demand shock on aggregate production follows a power law.The model differs from previous models of self-organized criticality in that it incorporates a global interaction in the network. The global interaction is interpreted as a representation of market transactions with which economists are familiar. The other novelty of the paper is that an intrinsic instability of (S,s) economies is found. Many small non-linearities in the (S,s) economy may not be cancelled out in aggregation. Instead, they play a key role in organizing the fluctuations of aggregate production.     

Human capital accumulation and the intertemporal elasticity of substitution of labor: How large is the bias?

I consider two different skill accumulation technologies, learning by doing and Ben-Porath type training. The effect of human capital accumulation in the form of learning by doing is to increase the labor supply elasticity estimate by a factor of 2.1 relative to the estimate that ignores human capital accumulation. The results are similar for the Ben-Porath type training technology, although the estimate of the bias is somewhat higher.     

How does financial development influence the impact of remittances on growth volatility?

This paper empirically examines how financial development influences the impact of remittances on GDP growth volatility. This empirical study is conducted using the panel smooth transition regression (PSTR) approach. The results show that the impact of remittances on GDP growth volatility is nonlinear and changes over time and across countries in function of financial development. More precisely, a high level of financial development helps remittances to have a high stabilizing impact. Therefore, public authorities in remittance recipient countries might implement policies that promote the financial sector in order to allow a high stabilizing impact of remittances.