IS THERE CHAOS IN THE WORLD ECONOMY? A NONPARAMETRIC TEST USING CONSISTENT STANDARD ERRORS by

A positive Lyapunov exponent is one practical deÞnition of chaos. We develop a formal test for chaos in a noisy system based on the consistent standard errors of the nonparametric Lyapunov exponent estimators. When our procedures are applied to international real output series, the hypothesis of the positive Lyapunov exponent is signiÞcantly rejected in many cases. One possible interpretation of this result is that the traditional exogenous models are better able to explain business cycle ßuctuations than is the chaotic endogenous approach. However, our results are subject to a number of caveats, in particular our results could have been inßuenced by small sample bias, high noise level, incorrect Þltering, and long memory of the data.