On lags and chaos in economic dynamic models (Q1180971)

The role of lags in dynamic economic models is discussed. A basic equivalence is proven between the following two representations of a lag structure: (i) a system with an indefinitely large number of agents, reacting to inputs with randomly gamma distributed discrete lags, (ii) a system with one single `representative' agent reacting to inputs with a continuous, multiple exponential lag. It is shown that the complex behaviour which characterizes certain dynamic models is not only a consequence of the non-linearity but it also crucially depends on the distribution of reaction times among the economic agents or units.