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Chaotic Economic Dynamics$
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Richard M. Goodwin

Print publication date: 1990

Print ISBN-13: 9780198283355

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198283350.001.0001

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Dynamical Control of Economic Waves by Fiscal Policy

Dynamical Control of Economic Waves by Fiscal Policy

Chapter:
(p.102) 8 Dynamical Control of Economic Waves by Fiscal Policy
Source:
Chaotic Economic Dynamics
Author(s):

Richard M. Goodwin

Publisher:
Oxford University Press
DOI:10.1093/0198283350.003.0008

The control variable in the previous chapter is interpreted here as public net income‐generating expenditure. In the absence of compensatory policy, the model of the previous chapter results in a highly irregular time series and maximum unemployment of 12%. In contrast, almost perfect smoothing is possible by large and rapid intervention, based upon derivative control, at the early stages of the fluctuation. The addition of proportional control can ensure that equilibrium unemployment falls gradually to an appropriately low level. Problems of implementation are discussed.

Keywords:   compensatory policy, derivative control, dynamic control, fiscal policy, fluctuations, monetary policy, proportional control, public expenditure, Rössler band, unemployment

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