Abstract
The cusp catastrophe model provides a useful tool for the analysis of several interesting phenomena (e.g.,hysteresis, divergence, abrupt changes), which are usually assumed away in economic modelling. This paper surveys the applications of the cusp in economics and derives estimates for the parameters of the equilibrium and the disequilibrium model based an the method of moments and the maximum likelihood method. Moreover, we present a hypothesis test that enables us to compare the cusp (nonlinear) model with a traditional (linear) model by means of statistical data.
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