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Chaotic dynamics in credit constrained emerging economies

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  • Caballe, Jordi
  • Jarque, Xavier
  • Michetti, Elisabetta

Abstract

This paper analyzes the role of financial development as a source of endogenous instability in small open economies. By assuming that firms face credit constraints, our model displays a complex dynamic behavior for intermediate values of the parameter representing the level of financial development of the economy. The basic implication of our model is that economies experiencing a process of financial development are more unstable than both very underdeveloped and very developed economies. Our instability concept means that small shocks have a persistent effect on the long run behavior of the model and also that economies can exhibit cycles with a very high period or even chaotic dynamic patterns.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 30 (2006)
Issue (Month): 8 (August)
Pages: 1261-1275

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Handle: RePEc:eee:dyncon:v:30:y:2006:i:8:p:1261-1275

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  1. Michael J. Stutzer, 1980. "Chaotic dynamics and bifurcation in a macro model," Staff Report 55, Federal Reserve Bank of Minneapolis.
  2. Betty Daniel & John Bailey Jones, 2001. "Financial Liberalization and Banking Crises in Emerging Economies," Discussion Papers 01-04, University at Albany, SUNY, Department of Economics.
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  12. Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 2000. "Currency Crises and Monetary Policy in an Economy with Credit Constraints," Working Papers 00.07, Swiss National Bank, Study Center Gerzensee.
  13. Benhabib, Jess & Day, Richard H., 1982. "A characterization of erratic dynamics in, the overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 37-55, November.
  14. Petrei, A. Humberto & Tybout, James, 1985. "Microeconomic adjustments in Argentina during 1976-1981: The importance of changing levels of financial subsidies," World Development, Elsevier, vol. 13(8), pages 949-967, August.
  15. Day, Richard H, 1982. "Irregular Growth Cycles," American Economic Review, American Economic Association, vol. 72(3), pages 406-14, June.
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Citations

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Cited by:
  1. Augier, Laurent & Soedarmono, Wahyoe, 2010. "Threshold Effect and Financial Intermediation in Economic Development," MPRA Paper 20494, University Library of Munich, Germany.
  2. Gomes, Orlando, 2007. "Constraints on credit, consumer behaviour and the dynamics of wealth," MPRA Paper 2886, University Library of Munich, Germany.
  3. Tarishi Matsuoka & Katsuyuki Naito & Keigo Nishida, 2011. "The Politics of Financial Development and Capital Accumulation," KIER Working Papers 793, Kyoto University, Institute of Economic Research.
  4. Orlando Gomes, 2008. "Time Preference and Cyclical Endogenous Growth in an AK Growth Model," Notas Económicas, Faculdade de Economia, Universidade de Coimbra, issue 28, pages 32-55, December.
  5. Orlando Gomes, 2010. "Deterministic randomness in a model of finance and growth," Journal of Evolutionary Economics, Springer, vol. 20(1), pages 95-114, January.
  6. Real Arai & Takuma Kunieda & Keigo Nishida, 2014. "Is Public Debt Growth-Enhancing or Growth-Reducing?," KIER Working Papers 884, Kyoto University, Institute of Economic Research.
  7. Gomes, Orlando, 2007. "Time preference and cyclical endogenous growth," MPRA Paper 3282, University Library of Munich, Germany.
  8. Gomes, Orlando, 2007. "On the allocation of credit and aggregate fluctuations," MPRA Paper 2889, University Library of Munich, Germany.
  9. Orlando Gomes, 2006. "Local Bifurcations and Global Dynamics in a Solow-type Endogenous Business Cycles Model," Annals of Economics and Finance, Society for AEF, vol. 7(1), pages 91-127, May.
  10. Elsa Orgiazzi, 2007. "Financial Development And Instability:The Role Of The Labour Share," Working Papers halshs-00353889, HAL.
  11. Gomes, Orlando, 2007. "Socially determined time preference in discrete time," MPRA Paper 3442, University Library of Munich, Germany.
  12. Gomes, Orlando, 2007. "Nonlinear dynamics in a model of financial development with a risk premium," MPRA Paper 2887, University Library of Munich, Germany.
  13. Kunieda, Takuma, 2008. "Finance and Growth Cycles," MPRA Paper 11340, University Library of Munich, Germany.
  14. Borusyak, K., 2011. "Nonlinear Dynamics of the Russian Stock Market in Problems of Risk Management," Journal of the New Economic Association, New Economic Association, issue 11, pages 85-105.
  15. Patrick-Antoine Pintus, 2007. "Procyclical International Capital Flows, Debt Overhang And Volatility," Working Papers halshs-00353596, HAL.
  16. Das, Satya P., 2008. "Some mechanisms of terror cycles," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 644-656, September.

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