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Tariff And Equilibrium Indeterminacy: A Global Analysis

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  • Zhang, Yan
  • Chen, Yan
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Abstract

Zhang (2009) shows that endogenous tariffs and endogenous labor income taxes (Schmitt-Grohe and Uribe, 1997) are equivalent in generating local indeterminacy. Using the method developed by Stockman (2009), we extend Zhang's analysis to prove that they are also equivalent in generating global indeterminacy (chaotic equilibria) under a balanced-budget rule. We show that the existence of Euler equation branching in an arbitrarily small neighborhood of a steady state can imply topological chaos in the sense of Devaney. In addition, the Euler equation branching occurs regardless of the local uniqueness of the equilibrium around the steady state(s).

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 16 (2012)
Issue (Month): S3 (November)
Pages: 394-410

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Handle: RePEc:cup:macdyn:v:16:y:2012:i:s3:p:394-410_00

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  1. Luís Francisco Aguiar-Conraria & Yi Wen, 2004. "Foreign Trade and Equilibrium Indeterminacy," NIPE Working Papers 5/2004, NIPE - Universidade do Minho.
  2. Julio I. Rotemberg & Michael Woodford, 1994. "Energy Taxes and Aggregate Economic Activity," NBER Chapters, in: Tax Policy and the Economy, Volume 8, pages 159-195 National Bureau of Economic Research, Inc.
  3. Gardini, Laura & Hommes, Cars & Tramontana, Fabio & de Vilder, Robin, 2009. "Forward and backward dynamics in implicitly defined overlapping generations models," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 110-129, August.
  4. Stephanie Schmitt-Grohe & Martin Uribe, 1995. "Balanced-budget rules, distortionary taxes, and aggregate instability," Finance and Economics Discussion Series 95-44, Board of Governors of the Federal Reserve System (U.S.).
  5. Luís Aguiar-Conraria & Yi Wen, 2007. "A note on oil dependence and economic instability," Working Papers 2006-060, Federal Reserve Bank of St. Louis.
  6. Michener, Ronald & Ravikumar, B., 1998. "Chaotic dynamics in a cash-in-advance economy," Journal of Economic Dynamics and Control, Elsevier, vol. 22(7), pages 1117-1137, May.
  7. Stockman, David R., 2010. "Balanced-budget rules: Chaos and deterministic sunspots," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1060-1085, May.
  8. Luis Aguiar-Conraria & Yi Wen, 2006. "Understanding the large negative impact of oil shocks," Working Papers 2005-042, Federal Reserve Bank of St. Louis.
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