Business cycles are oscillations in the economy because of recessions and expansions. In this paper we investigate the oscillation of the gross domestic product as a result of its relations with the other main macroeconomic variables such as capital, consumption, and investment. There is a long-standing debate about chaos and non-linear dynamics in economy and even the usefulness of those concepts has been questioned. Stochastic modeling has proven to be able to simulate reality fairly well. However, a stochastic behavior implies that reality is about exogenous randomness, while a chaotic behavior means that reality is deterministic and non-linearities are endogenous. Here we compare an Ornstein–Uhlenbeck stochastic process with a Kaldor–Kalecki deterministic chaotic model to understand which one fits better real data. We show that our chaotic model is able to represent reality as well as the stochastic model taken into consideration. Furthermore, our model may reproduce an extreme event (black swans).
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August 2020
Research Article|
August 14 2020
Business cycle modeling between financial crises and black swans: Ornstein–Uhlenbeck stochastic process vs Kaldor deterministic chaotic model
Giuseppe Orlando
;
Giuseppe Orlando
a)
1
Department of Economics and Finance, Università degli Studi di Bari “Aldo Moro,”
Via C. Rosalba 53, Bari I-70124, Italy
2
School of Science and Technologies, Università degli Studi di Camerino
, Via M. delle Carceri 9, Camerino I-62032, Italy
a)Author to whom correspondence should be addressed: [email protected] and [email protected]. Tel.: +39 080 5049218
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Giovanna Zimatore
Giovanna Zimatore
b)
3
Department of Theoretical and Applied Sciences, eCampus University
, Via Matera 18, Rome I-00182, Italy
4
Department of Human, Movement and Health Sciences, University of Rome “Foro Italico,”
Rome I-00135, Italy
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a)Author to whom correspondence should be addressed: [email protected] and [email protected]. Tel.: +39 080 5049218
Chaos 30, 083129 (2020)
Article history
Received:
June 01 2020
Accepted:
July 30 2020
Citation
Giuseppe Orlando, Giovanna Zimatore; Business cycle modeling between financial crises and black swans: Ornstein–Uhlenbeck stochastic process vs Kaldor deterministic chaotic model. Chaos 1 August 2020; 30 (8): 083129. https://doi.org/10.1063/5.0015916
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