Table of Contents
Journal of Chaos
Volume 2014, Article ID 515637, 9 pages
http://dx.doi.org/10.1155/2014/515637
Review Article

2D Chaos in the Interaction of Inflation and Unemployment: Moving Averages and the Modeling of High Frequency Macrodynamics

1Bielefeld University, Bielefeld, Germany
2New School for Social Research, New York, USA

Received 17 October 2013; Accepted 25 February 2014; Published 18 June 2014

Academic Editor: Grzegorz Litak

Copyright © 2014 Peter Flaschel and Christian Proaño. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

The paper argues that applicable macro is high frequency macro and the data generating process is therefore to be modeled in continuous time. It exemplifies this with a misuse of a 2D period model of monetarist type which becomes extremely overshooting, allowing for routes to “chaos,” when iterated at low frequencies. Instead of such low frequency procedures, we augment the model by a Keynesian feedback chain (the real rate of interest channel) to introduce local instability into the model. We also introduce heterogeneous opinion dynamics into it. The implied 4D dynamics are made bounded thereby, but seem to allow only complex limit cycles, with no transition towards strange attractors anymore.