A General Method for Comparative Dynamics in Continuous‐Time Models

15 Pages Posted: 19 Mar 2020

See all articles by Liutang Gong

Liutang Gong

Peking University

Wei Wang

University of International Business and Economics (UIBE) - School of International Trade and Economics

Date Written: March 2020

Abstract

This paper develops a general and applicable method for the computation of comparative dynamics in continuous‐time perfect foresight models. The key technique in our method is the Jordan decomposition of the Jacobian matrix. This enables us to derive analytical solutions when dealing with high‐dimensional systems with repeated eigenvalues. In an application, we compute comparative dynamics of an unanticipated expansionary monetary policy in scenarios with and without repeated eigenvalues. We find that the short‐run effects on the social welfare are opposite in the two scenarios, while the long‐run effects are similar.

Keywords: Jordan decomposition, Laplace transforms, multidimensional dynamic models

Suggested Citation

Gong, Liutang and Wang, Wei, A General Method for Comparative Dynamics in Continuous‐Time Models (March 2020). Australian Economic Papers, Vol. 59, Issue 1, pp. 55-69, 2020, Available at SSRN: https://ssrn.com/abstract=3556797 or http://dx.doi.org/10.1111/1467-8454.12171

Liutang Gong (Contact Author)

Peking University

Wei Wang

University of International Business and Economics (UIBE) - School of International Trade and Economics ( email )

10 East Huixin Street
Chaouang District
Beijing, 100029
China

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