Economists add to theory and empirics of economy’s non-linear dynamics
Paper by Bank of England economists finds “strong evidence” of non-linearity in UK data
The search for an explanation of non-linear mechanisms driving booms and busts in the economy moved forward this month, as groups of economists published papers on theoretical and empirical aspects of the problem.
The dominance of rational expectations has helped push non-linear approaches to the sidelines of macroeconomics, as economists such as Olivier Blanchard have noted.
But while linearity may be a convenient assumption, it can ignore important aspects of how the economy works
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