Introduction

The concept of structural stability is quite recent. An explicit and rigorous definition was developed only in the thirties in the language of topology. Since then it has played an increasingly crucial role in the development of qualitative mechanics as a fundamental methodological criterion. More recently, its importance has become increasingly recognized in other disciplines, including economics.

Although the received view in economics has always been that a structurally unstable model is useless for economic analysis and should be rejected, rational-expectations macroeconomics has recently reversed this methodological principle without any convincing attempt to justify such a radical change (see chapter 6). Rational-expectations models characterized by a saddle point seem to be the only ones able to give determined results. They are thus generally adopted although in such models the behaviour of the system is structurally unstable.

The issue of methodological acceptability of rational-expectations models exhibiting saddle-point properties cannot be properly discussed unless the methodological implications of structurally unstable models are properly discussed.

In section 4.21 first introduce a brief account of the genesis of the concept of structural stability. In section 4.31 will discuss a few important problems involved in the search for a rigorous definition of structural instability. In section 4.4 my attention will turn to the observability and the plausibility of a system having a certain degree of structural instability. In section 4.51 will be in a position to discuss some methodological implications of structural instability. Conclusions follow in section 4.6. In the first appendix (4A), I will explore a few simple operational concepts of structural instability.