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Chaos and capacity utilization under increasing returns to scale

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  • Stockman, David R.

Abstract

Abstract It has been shown that adding variable capacity utilization of capital to a one-sector model with a mild production externality can produce local indeterminacy. In this paper, I provide a global analysis of this model and provide sufficient conditions for the existence of Euler equation branching. I show that this branching allows for regime switching equilibria implying [omega]-chaos and positive topological entropy - two notions of chaotic behavior.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 77 (2011)
Issue (Month): 2 (February)
Pages: 147-162

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Handle: RePEc:eee:jeborg:v:77:y:2011:i:2:p:147-162

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Variable capacity utilization Increasing returns to scale Externality Indeterminacy Cycles Chaos Euler equation branching Regime switching [omega]-Chaos Topological entropy;

References

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  1. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers, UCLA Department of Economics 646, UCLA Department of Economics.
  2. Laura Gardini & Cars Hommes & Fabio Tramontana & Robin de Vilder, 2008. "Forward and Backward Dynamics in Implicitly Defined Overlapping Generations Models," Working Papers, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini 0806, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2008.
  3. Stockman, David R., 2009. "Chaos and sector-specific externalities," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 33(12), pages 2030-2046, December.
  4. Benhabib, Jess & Farmer, Roger E A, 1996. "Indeterminacy and Sector-specific Externalities," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1403, C.E.P.R. Discussion Papers.
  5. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 546, Board of Governors of the Federal Reserve System (U.S.).
  6. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 78(3), pages 402-17, June.
  7. Lawrence J. Christiano & Sharon G. Harrison, 1996. "Chaos, sunspots, and automatic stabilizers," Working Paper Series, Macroeconomic Issues WP-96-16, Federal Reserve Bank of Chicago.
  8. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1995. "Capital utilization and returns to scale," Working Paper Series, Macroeconomic Issues 95-5, Federal Reserve Bank of Chicago.
  9. Schmitt-Grohe, Stephanie & Uribe, Martin, 1997. "Balanced-Budget Rules, Distortionary Taxes, and Aggregate Instability," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(5), pages 976-1000, October.
  10. Wen, Yi, 1998. "Capacity Utilization under Increasing Returns to Scale," Journal of Economic Theory, Elsevier, Elsevier, vol. 81(1), pages 7-36, July.
  11. Stockman, David R., 2010. "Balanced-budget rules: Chaos and deterministic sunspots," Journal of Economic Theory, Elsevier, Elsevier, vol. 145(3), pages 1060-1085, May.
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