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Is the macroeconomy locally unstable and why should we care?

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dc.contributor.author Beaudry, Paul
dc.contributor.author Galizia, Dana
dc.contributor.author Portier, Franck
dc.date.accessioned 2016-12-07T10:22:52Z
dc.date.available 2016-12-07T10:22:52Z
dc.date.issued 2016-05
dc.identifier.uri http://hdl.handle.net/10230/27702
dc.description.abstract In most modern macroeconomic models, the steady state (or balanced growth path) of the system is a local attractor, in the sense that, in the absence of shocks, the economy would converge to the steady state. In this paper, we examine whether the time series behavior of macroeconomic aggregates (especially labor market aggregates) is in fact supportive of this local-stability view of macroeconomic dynamics, or if it instead favors an alternative interpretation in which the macroeconomy may be better characterized as being locally unstable, with nonlinear deterministic forces capable of producing endogenous cyclical behavior. To do this, we extend a standard AR representation of the data to allow for smooth nonlinearities. Our main finding is that, even using a procedure that may have low power to detect local instability, the data provide intriguing support for the view that the macroeconomy may be locally unstable and involve limit-cycle forces. An interesting finding is that the degree of nonlinearity we detect in the data is small, but nevertheless enough to alter the description of macroeconomic behavior. We complete the paper with a discussion of the extent to which these two different views about the inherent dynamics of the macroeconomy may matter for policy.
dc.description.sponsorship The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries ADEMU Working Paper Series;34
dc.rights This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
dc.rights.uri http://creativecommons.org/licenses/by/4.0/
dc.title Is the macroeconomy locally unstable and why should we care?
dc.type info:eu-repo/semantics/workingPaper
dc.subject.keyword Macroeconomic fluctuations
dc.subject.keyword Limit cycle
dc.subject.keyword Unemployment
dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/649396
dc.rights.accessRights info:eu-repo/semantics/openAccess

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