The feedback channels in macroeconomics: analytical foundations for structural econometric model building

Abstract

We investigate important macroeconomic and macroeconometric feedback channels in models that concern the dynamic interaction of the labor market, product market and the monetary and financial sector. The core of our study is an applied disequilibrium model of monetary growth of a small open economy. After surveying the feedback channels we consider a compact description of the intensive form of the model. We consider various types of subsystems, the integration of which is subsequently compared from the perspective of bifurcation diagrams that separate cases of asymptotic stability from stable cyclical behavior as well as pure explosiveness. In this way we lay out a research strategy, which will show, in contrast to what is generally believed, that applied integrated macrodynamic systems can have a variety of interesting attractors and transient dynamics, which are obtained in particular when locally explosive situations are turned into bounded dynamics by the addition of specifically tailored extrinsic nonlinearities.

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Correspondence to Peter Flaschel.

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Chen, P., Chiarella, C., Flaschel, P. et al. The feedback channels in macroeconomics: analytical foundations for structural econometric model building. 14, 261–288 (2006). https://doi.org/10.1007/s10100-006-0004-9

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Keywords

  • Structural macroeconometric models
  • Decompositions
  • Re-integration
  • Feedback channels
  • Stability basins

JEL Classification

  • E12
  • E32