arXiv subjects

Harbir Lamba

Publications and source records attributed to Harbir Lamba.

7 recordsLinked to original sources

arXiv2017

A continuum of path-dependent equilibrium solutions induced by sticky expectations

We analyze a simple macroeconomic model where rational inflation expectations is replaced by a boundedly rational, and genuinely sticky, response to changes in the actual inflation rate. The stickiness is introduced in a novel way using a mathematical operator that is amenable to rigorous analysis. We prove that, when exogenous noise is absent from the system, the unique equilibrium of the rational expectations model is replaced by an entire line segment of possible equilibria with the one chosen depending, in a deterministic way, upon the previous states of the system. The agents are sufficiently far-removed from the rational expectations paradigm that problems o indeterminacy do not arise. The response to exogenous noise is far more subtle than in a unique equilibrium model. After sufficiently small shocks the system will indeed revert to the same equilibrium but larger ones will move the system to a different one (at the same model parameters). The path to this new equilibrium may be very long with a highly unpredictable endpoint. At certain model parameters exogenously-triggered runaway inflation can occur. Finally, we analyze a variant model in which the same form of sticky response is introduced into the interest rate rule instead.

math.DS↗

arXiv2017

Global stability of a piecewise linear macroeconomic model with a continuum of equilibrium states and sticky expectation

We consider piecewise linear discrete time macroeconomic models, which possess a continuum of equilibrium states. These systems are obtained by replacing rational inflation expectations with a boundedly rational, and genuinely sticky, response of agents to changes in the actual inflation rate in a standard Dynamic Stochastic General Equilibrium model. Both for a low-dimensional variant of the model, with one representative agent, and the multi-agent model, we show that, when exogenous noise is absent from the system, the continuum of equilibrium states is the global attractor. Further, when a uniformly bounded noise is present, or the equilibrium states are destabilized by an imperfect Central Bank policy (or both), we estimate the size of the domain that attracts all the trajectories. The proofs are based on introducing a family of Lyapunov functions and, for the multi-agent model, deriving a formula for the inverse of the Prandtl-Ishlinskii operator acting in the space of discrete time inputs and outputs.

math.DS↗

arXiv2016

Dynamics of Discrete Time Systems with a Hysteresis Stop Operator

We consider a piecewise linear two-dimensional dynamical system that couples a linear equation with the so-called stop operator. Global dynamics and bifurcations of this system are studied depending on two parameters. The system is motivated by modifications to general-equilibrium macroeconomic models that attempt to capture the frictions and memory-dependence of realistic economic agents.

math.DS↗

arXiv2014

Analytical solution for a class of network dynamics with mechanical and financial applications

We show that for a certain class of dynamics at the nodes the response of a network of any topology to arbitrary inputs is defined in a simple way by its response to a monotone input. The nodes may have either a discrete or continuous set of states and there is no limit on the complexity of the network. The results provide both an efficient numerical method and the potential for accurate analytic approximation of the dynamics on such networks. As illustrative applications, we introduce a quasistatic mechanical model with objects interacting via frictional forces, and a financial market model with avalanches and critical behavior that are generated by momentum trading strategies.

cond-mat.stat-mech↗

arXiv2012

The Transition from Brownian Motion to Boom-and-Bust Dynamics in Financial and Economic Systems

Quasi-equilibrium models for aggregate variables are widely-used throughout finance and economics. The validity of such models depends crucially upon assuming that the systems' participants behave both independently and in a Markovian fashion. We present a simplified market model to demonstrate that herding effects between agents can cause a transition to boom-and-bust dynamics at realistic parameter values. The model can also be viewed as a novel stochastic particle system with switching and reinjection.

q-fin.TR↗

arXiv2010

How sensitive are equilibrium pricing models to real-world distortions?

In both finance and economics, quantitative models are usually studied as isolated mathematical objects --- most often defined by very strong simplifying assumptions concerning rationality, efficiency and the existence of disequilibrium adjustment mechanisms. This raises the important question of how sensitive such models might be to real-world effects that violate the assumptions. We show how the consequences of rational behavior caused by perverse incentives, as well as various irrational tendencies identified by behavioral economists, can be systematically and consistently introduced into an agent-based model for a financial asset. This generates a class of models which, in the special case where such effects are absent, reduces to geometric Brownian motion --- the usual equilibrium pricing model. Thus we are able to numerically perturb a widely-used equilibrium pricing model market and investigate its stability. The magnitude of such perturbations in real markets can be estimated and the simulations imply that this is far outside the stability region of the equilibrium solution, which is no longer observed. Indeed the price fluctuations generated by endogenous dynamics, are in good general agreement with the excess kurtosis and heteroskedasticity of actual asset prices. The methodology is presented within the context of a financial market. However, there are close links to concepts and theories from both micro- and macro-economics including rational expectations, Soros' theory of reflexivity, and Minsky's theory of financial instability.

q-fin.GN↗

arXiv1993

Chaotic, regular and unbounded behaviour in the elastic impact oscillator

A discontinuous area-preserving mapping derived from a sinusoidally-forced impacting system is studied. This system, the elastic impact oscillator, is very closely related to the accelerator models of particle physics such as the Fermi map. The discontinuity in the mapping is due to grazing which can have a surprisingly large effect upon the phase space. In particular, at the boundary of the stochastic sea, the discontinuity set and its images can act as a partial barrier which allows trajectories to move between chaotic and regular regions. The system at higher energies is also analysed and Moser's invariant curve theorem is used to find sufficient conditions for the existence of invariant curves that bound the energy of the motion. Finally the behaviour of the system under more general periodic forcing is briefly investigated.

chao-dyn↗