Endogenous chaotic dynamics in transitional economies

Abstract This paper examines a model of labor market dynamics in an economy undergoing transition from command socialism to market capitalism. State sector layoffs are modeled as a function of forecasts made by state planners of private sector wages where the laidoff workers are to be re-employed. The state switches between using a high information cost perfect forecast and a free naive forecast in a system that resembles a cobweb supply-demand model. Under certain specifications and parameter values chaotic dynamics are shown to endogenously emerge along with several other varieties of complex dynamics including strange attractors, coexistence of infinitely many stable cycles, cascades of infinitely many period doubling bifurcations and fractal basin boundaries between coexisting non-chaotic attractors.

[1]  J. B. Rosser,et al.  Long wave chaos and systemic economic transformation , 1994 .

[2]  S. Smale.  Differentiable dynamical systems , 1967 .

[3]  J. Barkley Rosser,et al.  From Catastrophe to Chaos: A General Theory of Economic Discontinuities , 1991 .

[4]  Richard H. Day,et al.  Bulls, bears and market sheep , 1990 .

[5]  William A. Brock,et al.  PATHWAYS TO RANDOMNESS IN THE ECONOMY: EMERGENT NONLINEARITY AND CHAOS IN ECONOMICS AND FINANCE , 1993 .

[6]  Jean-Michel Grandmont,et al.  Expectations formation and stability of large socioeconomic systems , 1998 .

[7]  H. Zou.  Socialist economic growth and political investment cycles , 1991 .

[8]  J. Yorke,et al.  Fractal basin boundaries , 1985 .

[9]  Jean-Paul Chavas,et al.  Market Instability and Nonlinear Dynamics , 1993 .

[10]  Peter C. Murrell,et al.  Can Neoclassical Economics Underpin the Reform of Centrally Planned Economies , 1991 .

[11]  J. Rosser,et al.  Complex Dynamics and Systemic Change: How Things Can Go Very Wrong , 1997 .

[12]  M. Knell.  Economics of transition : structural adjustments and growth prospects in Eastern Europe , 1996 .

[13]  T. Puu.  Nonlinear economic dynamics , 1989 .

[14]  J. Brada,et al.  Is there aJ-curve for the economic transition from socialism to capitalism? , 1992, Economics of Planning.

[15]  Cars H. Hommes,et al.  Dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand , 1994 .

[16]  C. Chiarella.  The cobweb model , 1988 .

[17]  J. Yorke,et al.  Cascades of period-doubling bifurcations: A prerequisite for horseshoes , 1983 .

[18]  J. Rosser,et al.  Comparative Economics in a Transforming World Economy , 1996 .

[19]  William A. Brock,et al.  Rational routes to randomness , 1995 .

[20]  T. Sargent.  Bounded rationality in macroeconomics , 1993 .

[21]  S. Smale.  Diffeomorphisms with Many Periodic Points , 1965 .

[22]  Cars H. Hommes,et al.  Chaotic dynamics in economic models: some simple case studies , 1991 .

[23]  Philippe Aghion,et al.  On the Speed of Transition in Central Europe , 1994, NBER Macroeconomics Annual.

[24]  André de Palma,et al.  Discrete Choice Theory of Product Differentiation , 1995 .

[25]  Wei-Bin Zhang,et al.  Synergetic Economics: Time and Change in Nonlinear Economics , 1991 .

[26]  R. Palmer,et al.  Artificial economic life: a simple model of a stockmarket , 1994 .

[27]  Lennart Carleson,et al.  The Dynamics of the Henon Map , 1991 .

[28]  G. Calvo,et al.  Stagflationary Effects of Stabilization Programs in Reforming Socialist Countries: Enterprise-Side and Household-Side Factors , 1992 .

[29]  Cars H. Hommes,et al.  Cycles and chaos in a socialist economy , 1995 .

[30]  Carl Chiarella,et al.  The cobweb model: Its instability and the onset of chaos , 1988 .

[31]  S. Newhouse,et al.  Diffeomorphisms with infinitely many sinks , 1974 .

[32]  Marcelo Viana,et al.  Abundance of strange attractors , 1993 .