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AN ANALYTICAL AND NUMERICAL SEARCH FOR BIFURCATIONS IN OPEN ECONOMY NEW KEYNESIAN MODELS

Published online by Cambridge University Press:  14 October 2014

William A. Barnett  and
Unal Eryilmaz
William A. Barnett*
Affiliation:
University of Kansas and Center for Financial Stability
Unal Eryilmaz*
Affiliation:
Prime Ministry of Turkey
*
Address correspondence to: William A. Barnett, Department of Economics, University of Kansas, Lawrence, KS 66045, USA; e-mail: barnett@ku.edu
Unal Eryilmaz, Prime Ministry of Turkey, Kanunlar ve Kararlar Genel Mudurlugu, Basbakanlik, Vekaletler Cad., 06573 Bakanlikar, Ankara, Turkey; e-mail: unaleryilmaz@yahoo.com.
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Abstract

We explore bifurcation phenomena in the open-economy New Keynesian model developed by Galí and Monacelli in 2005. We find that the open economy framework brings about more complex dynamics, along with a wider variety of qualitative behaviors and policy responses. Introducing parameters related to the open economy structure affects the values of bifurcation parameters and changes the location of bifurcation boundaries. As a result, the stratification of the confidence region, as previously seen in closed-economy New Keynesian models, remains an important research and policy risk to be considered in the context of the open-economy New Keynesian functional structures. In fact, econometrics and optimal policy design become more complex within an open economy. Dynamical inferences need to be qualified by the risk of bifurcation boundaries crossing the confidence regions. Policy design needs to take into consideration that a change in monetary policy can produce an unanticipated bifurcation, without adequate prior econometrics research.

Keywords

StabilityBifurcationOpen EconomyNew KeynesianDeterminacyMacroeconomicsDynamic Systems
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 2: Complexity in Economic Systems , March 2016 , pp. 482 - 503
Copyright
Copyright © Cambridge University Press 2014 

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