Unsolved Econometric Problems In Nonlinearity, Chaos, And Bifurcation

Abstract

In an attempt to resolve the controversies that exist within the field of economics regarding nonlinearity, chaos, and bifurcation, we investigate the relevancy to these controversies of a controlled competition among nonparametric econometric tests for nonlinearity and chaos, and we also report on our results with experiments using parametric macroeconomic models to investigate the implications of bifurcation for macroeconomic policy. These experiments are part of an ongoing research project. What we find so far is that existing views on nonlinearity, chaos, and bifurcation in economics are based upon oversimplified views that currently neither can be confirmed nor contradicted with empirical results that are now available. Since these issues are deep and difficult, considerably more research is needed before any serious conclusions on the subject can be stated with confidence. This fact is particularly true regarding the relevancy of nonlinearity, chaos, and bifurcation for macroeconomic stabilization policy.

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