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Aggregate dynamics and Fokker-Planck equation

Equating the highest-order terms in N on the two sides of (Eq. 3.1) yields the aggregate equations for φ,

The zeros of the function α1,0(φ) = 0 defined by (Eq. 3.2) are the critical points ofthe aggregate dynamics. Ifits derivatives there are negative, then those critical points are locally stable. When α1,0(φ) are continuous functions of φ in the range between 0 and 1, then the zeros are alternately locally stable and unstable. The aggregate dynamics of the Diamond model in Chapter 9 turns out to have a discontinuity. There are two critical points, and both of them are locally stable.

3.4

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Source: Aoki M.. Modeling Aggregate Behaviour & Fluctuations in Economics. Cambridge: Cambridge University Press,2002. — 281 p.. 2002

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