Abstract
In Chapters 6 and 7 we discussed the jump variable of rational expectations theory and saw that they had a crucial role in rational expectations dynamics. It was also evident that the behaviour of these jump variables has very little theoretical underpinning. They are essentially ad hoc constructions necessary for modelling reasons. Observable economic variables do jump however; exchange rates furnish perhaps the most obvious example. In this chapter we examine a type of model which can be used to explain such jumps in a coherent way.
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Further reading
Woodcock and Davis (1978) is a popular introduction to catastrophe theory. Saunders (1980) is an excellent, slightly more advanced, reference which discusses both mathematics and applications. See also Poston and Stewart (1978). The classic reference, by the founder of catastrophe theory, is Thorn (1976).
The economic applications in this chapter are taken from George (1981). See also Varian (1979), Harris (1976) and Fischer and Jammernegg (1986).
Zahler and Sussman (1977) is the most famous critique of applied catastrophe theory.
For a discussion of the problems of testing catastrophe models empirically see Cobb (1978, 1981).
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© 1988 Donald A.R. George
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George, D.A.R. (1988). Discontinuities and catastrophes. In: Mathematical Modelling for Economists. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-19238-0_8
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DOI: https://doi.org/10.1007/978-1-349-19238-0_8
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-0-333-42444-5
Online ISBN: 978-1-349-19238-0
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