Structural Stability Analysis in a Dynamic IS-LM-AS Macroeconomic Model with Inflation Expectations

Ciro Eduardo Bazán Navarro, Renato Mario Benazic Tomé

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

In this article, we carry out the structural analysis of an IS-LM-AS macroeconomic model with adaptive inflation expectations, exploring the presence of a possible local bifurcation. We prove that the model is structurally unstable when the speed with which economic agents adjust their expectations about future inflation is equal to the inverse of the semi-elasticity of real money demand with respect to the nominal interest rate since the periodic solutions are lost when the adaptive expectations parameter suffer any small change, ceteris paribus. Additionally, the phase portraits of the instantaneous rate of change of the real interest rate, the inflation rate, and the instantaneous rate of change of the inflation rate are numerically simulated in ℝ3 with MATLAB for three asymptotically and locally stable cases and for the degenerate Hopf bifurcation. Finally, our results show that, specifically, in the case of pure conjugate complex eigenvalues, the economy could enter periods of an inflationary/deflationary spiral when the adaptive expectations parameter is of greater magnitude to the inverse of the semi-elasticity of real money demand balances with respect to the nominal interest rate, regardless of its initial state.

Original languageEnglish
Article number5026061
JournalInternational Journal of Differential Equations
Volume2022
DOIs
StatePublished - 2022

Fingerprint

Dive into the research topics of 'Structural Stability Analysis in a Dynamic IS-LM-AS Macroeconomic Model with Inflation Expectations'. Together they form a unique fingerprint.

Cite this