Tran Thi Anh Nguyet

MEC 2012 2013

SIMULATION THE GOODWIN MODEL

Form of the differential system =
1

= + + =

+ = 1 ( + )
+

1. Fixed point:

and the trivial fixed point (0,0)

However, neither u nor v can reach the zero value so in fact, Ill exclude the trivial fixed point To be sure that u and v are economically meaningful, we impose 3. Jacobian matrix of the system
1

(II)

0 < +

0 < +

J(u,v)=

+ +

4. Qualitative characteristic around (0,0)

1

J(0,0)=

( + ) 0 0

1, 2 are 2 eigen values at (0.0) Det(J)=12 = [ ( + )]( )> 0 as the condition (II)
1

=> (0,0) is an unstable saddle point 5.Qualitative characteristic with fixed point (u*,v*) J(u*, v*)= (i) (ii) 0 (1 + )

Take 1, 2 as two eigen values of the system (I) at (u*,v*) Det(J) =

+

1 +

= 1 2 > 0

with any set of parameters satisfying the condition

(II) 1 , 2 have the same sign (iii) Trace(J) = 1 + 2 = 0 (iv) => at (u*,v*) the system is neutrally central From (ii) and (iii) we have 2 + det = 0 1 = + with = 1 + 2 = However, it has zero as the real part so we cant conclude anyanything else about the stability???

(** The non-trivial fixed point (u*,v*) is Lyapunov stable. Trivial fixed point is saddle point) 6. Time of the cycles period: Its impossible to obtain even an closed approximation for the cycles period. However, close to the stationary point, G.Harvie gives an approximation as the following =
2 [ +
1

+ ] 2

= 2

7. Simulation of the original Goodwin model

Here, I plot the phase plane of (I) with the following intial conditions and parameters. (Use pplan8.m toolbox) {set 1: sig=0.6; g=0.3; n=0.01; gm=25; p=26} (i) The non-trivial fixed point: (u*=0.814; v*=0.97) - As can be seen from the graph, around (u*,v*), there exists neutral center. However, the trajectories of the system, at some points, can exceed the unit-square of worker share-employment phase plane. - In the thick part of closed orbits around the equilibrium, the cyclic solution doesnt tend to close to the equilibrium (u*,v*) but widen farther and farther. That means the economy will explode? - Some initial points are really close to the equilibrium but they still expand farther instead of remaining or being attracted to the equi - There are consecutive alternates between expanding and closing points in the neutrally central area? (ii) The trivial fixed point is a saddle point. Cant conclude any thing about the growing direction of the economy. (iii) Characteristics of conservative system : Checked Goodwins paper, he did not impose any conditions for parameters, so with some sets of parameter, there doesnt exist the fixed point (or areas of attraction) in the economically meaning pha se plane [0x1].[0x1])

8. Conclusion : Unrealistic model - As both u and v are given as ratios, so all possible solution of the system should satisfy (I) provided that t>=0. However, as can be seen from the figure 1, there exists some initial points at which trajectories of the system will expand outside the (0x1)(0x1) phase plane. - The capital/output ratio and growth rate of population dont have any effects on the employment rate For example, occuring an unexpected epidemic or disaster can reduce the growth rate of population and labor force, as well as influence negatively on economy. Therefore, it certainly causes some fluctuations for the employment rate. - Consider a shock that can change either u(t) or v(t) then, the equilibrium (u*,v*) and especially values of g (growth rate of labour productivity) and sigma (capital - output ratio). However, as all of parameters are exogenously given, so the model's stationary point can not be perturbed. - If either u=0 or v=0, how would we explain the economic meaning of model?

II. Alternatives model

This part uses three alternative approximations proposed in the Zambellis lectures to derive modified Goodwin models . 1. The first alternative: = =
1

So the (I) becomes

+
1

2 1

Non-trivial fixed point

= 1 ( + ) = 1 +2
1

Excluding an unrealistic case in which labor productivity is persistent to grow at negative rate, we always have 0 < v* < 1, that means the economy can never reach full employment at the equilibrium.

2. The second alternative: = -

Unstable spiral and saddle point That means the system will explode

3. The 3rd alternative: = Fixed point:

= 1 ( + ) =
1 + +1 1 + +2

(III)

To be sure that (u*,v*) has economic meaning, here, we only need imposing the condition to be sure 1 u* > 0 given that other parameters {g,n, } are economically meaningful before: 0 < + 1 (*) With (*), v* always belong to (0,1)
1

J(u,v)=

+
1 (1 )2

< I used Matlab to compute the general result for J(u*,v*) however, it seems too complicating. Therefore, I skip here and just plot a graph with two initial conditions. > Using the same set of parameters {sig=0.6, g=0.3, n=0.01}, the system exhibits stable spiral. That means the economy will oscillate with dampening cycles.

4. Further simulation Based on David Harvie (Economic Issues, 2007) I tend to simulate the Goodwins original models turningpoint measures that are defined as following:

=
=

The system is deep (tall) in the sense that if the measure is smaller (greater) than 1. Characteristics of Goodwins model are shown on the following table: (u*,v*) T u=umaxumin v=vmaxvmin

I used your function (in the lecture note) to generate data, however, it doesnt work. For example,
%% Set of parameters sig=0.6; g=0.3; n=0.01; gm=25; p=26; %% 1st Initial value u0=0.87; v0=0.96; tf=100; h=0.1; [u,v,t]=goodwin(sig,g,n,gm,p,u0,v0,h,tf) Maxv=MAX(u); Minv=MIN(u); The resulting data on the command window of Matlab started returns negative infinite and then N/A from t=55 for both u and v. That means u and v from t=55 stray outside the (0x1)(0x1) square, is that right? When attemping plotting by pplan8, with the same initial conditions and set of parameters but using Runge-Kutta 4 in stead of Euler approximation, I get the same result. Tried with some other initial conditions but most of them tend to widen outside unit square so I cant generate statistical table. 5. Matlab code to compute Jacobian matrix for the 3rd alternative syms sig g n a b c d a0 b0 c0 d0 u v ustar vstar sigmax=1; sigmin=0; gmax=1; gmin=-1; nmax=1; nmin=-1; ustar=1-sig*(g+n); vstar=1-1/(g*ustar+2) %% (u*,v*) u=ustar; v=vstar; a=1/sig-(g+n)-u/sig; b=-v/sig; c=-1/((1-v)^2); d=-g; Jac=[a b; c d]; %% compute Jacob(u*,v*) %% DETJac=a*d-b*c

TraceJac=a+c %% Eigen value %% if DETJac==0; display the system is neutrally central at (u*,v*) end; %% if DETJac > 0; % TraceJac > 0; % display unstable spiral % end; % if DETJac > 0; % TraceJac < 0; % display stable spiral % end; %% u=0; v=0;

***********
This code results the following values for det(J) and trace(J)
vstar = 1/(g*(sig*(g DETJac = g*(g + n 1)*(g*(sig*(g + n) TraceJac = (sig*(g + + n) - 1) - 2) + 1 (sig*(g + n) - 1)/sig - 1/sig) - ((1/(g*(sig*(g + n) - 1) - 2) + 1) - 2)^2)/sig n) - 1)/sig - n - g + 1/sig - (g*(sig*(g + n) - 1) - 2)^2