Business Cycle Modeling: Ornstein-Uhlenbeck Stochastic Process versus Kaldor Deterministic Chaotic Model
Giuseppe Orlando  1@  
1 : University of Bari  (UNIBA)  -  Website
Professor of Financial & Actuarial Mathematics Università degli Studi di Bari “Aldo Moro” Department of Economics and Finance Via C. Rosalba 53 VI Floor, Room 12 Bari, 70124 Italy Tel. +39 080 5049218 giuseppe.orlando@uniba.it -  Italy

Business cycles denote oscillations in economy because of downturns and expansions. The macroeconomic variables under our investigation are income, capital, consumption and investment and their dynamics. There is long-standing debate about chaos and non-linear dynamics in economy and even the usefulness of those concepts have been questioned. Stochastic modelling has proven to be able to well represent reality. However a stochastic behaviour implies that reality is about exogenous randomness, while a chaotic behaviour means that reality is deterministic and non-linearities are endogenous. In this paper we compare a Ornstein-Uhlenbeck stochastic process versus a Kaldor-Kalecki deterministic chaotic model to understand what fits better intrinsic structure of real data.


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