Tariff And Equilibrium Indeterminacy: A Global Analysis
AbstractZhang (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 InfoArticle provided by Cambridge University Press in its journal Macroeconomic Dynamics.
Volume (Year): 16 (2012)
Issue (Month): S3 (November)
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Other versions of this item:
- Zhang, Yan & Chen, Yan, 2009. "Tariff and Equilibrium Indeterminacy - A Global Analysis," MPRA Paper 18296, University Library of Munich, Germany.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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