Chapter

Observability of Chaotic Economic Dynamics in the Matsuyama Model

Makoto Yano, Kenji Sato and Yuichi Furukawa

in Dimensions of Economic Theory and Policy

Published in print October 2011 | ISBN: 9780198073970
Published online September 2012 | e-ISBN: 9780199081615 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780198073970.003.0006
Observability of Chaotic Economic Dynamics in the Matsuyama Model

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The interaction between innovation and capital accumulation may give rise to a cyclical equilibrium path in an endogenous growth model. This presents a new mechanism through which two productive sectors interact with one another to create nonlinear equilibrium dynamics. However, no study has fully examined the extent of nonlinearity. This chapter focuses on the observability of chaotic economic dynamics in the Matsuyama model of endogenous growth with innovation and capital accumulation. It shows that the Matsuyama system can be an ergodic chaos for a wide range of parameter values; in an ergodic chaos chaotic behaviour is observable for almost every initial state but not in a topological chaos. This result extends the earlier work of Anjan Mukherji and Tapan Mitra, who used bifurcation diagrams to demonstrate the possibility of a topological chaos as well as the observability of a chaos.

Keywords: observability; innovation; capital accumulation; endogenous growth model; ergodic chaos; nonlinear equilibrium dynamics; economic dynamics; Matsuyama model; topological chaos; Anjan Mukherji

Chapter.  2838 words.  Illustrated.

Subjects: Microeconomics

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