The paper introduces the concept of structural stability and proposes that it should be considered a necessary property of scientifically valid models. Formalization of the concept is considered in both linear and non-linear models. A strong preference in favour of the wider use of non-linear models is supported by consideration of the dangers of linearization in dynamic models. The importance of structural stability is demonstrated with reference to dynamic rational expectations models which exhibit the saddle-point property. In such cases convergence to equilibrium is shown to be a structurally unstable property which can be forced by restrictive auxillary assumptions, which are highlighted.
|Number of pages||10|
|Publication status||Published - 1985|
- Structural stability
- Non-linear models
- Rational expectations