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Chaos in economic models with exogenous shocks

Akhmet, Marat
Akhmetova, Zhanar
Fen, Mehmet Onur
We investigate the generation of chaos in economic models through exogenous shocks. The perturbation is formulated as a pulse function where either values or instants of discontinuity are chaotically behaved. We provide a rigorous proof of the existence of chaos in the perturbed model. The analytical results are applied to Kaldor-Kalecki-type models of the aggregate economy subject to export and rainfall shocks, respectively. Simulations are used to demonstrate the emergence and the control of chaos. Our results shed light on a novel source of chaos in economic models and have important implications for policy-making.