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Economic Fluctuations and Capitalistic Production: A Case Study in Robustness Constraints

Citation

Cruz, Gerardo (2016) Economic Fluctuations and Capitalistic Production: A Case Study in Robustness Constraints. Master's thesis, California Institute of Technology. http://resolver.caltech.edu/CaltechTHESIS:06202016-133637013

Abstract

A central pursuit of macroeconomic research is to understand the source of short run variations in aggregate economic variables. To this end, the branch of macroeconomics known as Real Business Cycle (RBC) theory emphasizes the role of disturbances to the real economy while abstracting from nominal variables (e.g. money). According to RBC theory, business cycles are the result of optimal responses to exogenous stochastic disturbances on technology in a structure of capitalistic production. In this report, we contend that the structure of capitalistic production per se constrains the ability of the economy to absorb shocks. That is, even if the feedback behavior in the model is designed to mitigate fluctuation (and is not necessarily optimal relative to some inter-temporal utility), the resulting sensitivity is nevertheless constrained by a lower bound. Moreover, we show that this lower bound is exacerbated with increasing steady state consumption, capital and investment. Concretely, we show that the Ramsey model, linearized about its steady state equilibrium, has a non-minimum phase structure and therefore its sensitivity is constrained by the control theoretic design limits. Moreover, the non-minimum phase zero is given by the inverse of the discount factor. As the discount factor approaches unity, steady state consumption approaches optimal steady state consumption, but the non-minimum phase zero approaches the closed unit circle exacerbating the sensitivity constraints.

Item Type:Thesis (Master's thesis)
Subject Keywords:controls, economics, business cycle, control theory
Degree Grantor:California Institute of Technology
Division:Engineering and Applied Science
Major Option:Control and Dynamical Systems
Thesis Availability:Public (worldwide access)
Research Advisor(s):
  • Doyle, John Comstock (advisor)
  • Murray, Richard M. (co-advisor)
Thesis Committee:
  • None, None
Defense Date:5 February 2016
Record Number:CaltechTHESIS:06202016-133637013
Persistent URL:http://resolver.caltech.edu/CaltechTHESIS:06202016-133637013
Default Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:9880
Collection:CaltechTHESIS
Deposited By: Gerardo Cruz
Deposited On:28 Apr 2017 18:06
Last Modified:28 Apr 2017 18:06

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