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Chaotic Dynamics in Credit Constrained Emerging Economies

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  • Jordi Caballe

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  • Xavier Jarque
  • Elisabetta Michetti

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

Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 605.04.

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Length: 29
Date of creation: 16 Mar 2004
Date of revision:
Handle: RePEc:aub:autbar:605.04

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Keywords: Chaotic Dynamics; Credit Constraints; Financial Development.;

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References

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  1. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers 1995-5, Edinburgh School of Economics, University of Edinburgh.
  2. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2000. "A simple model of monetary policy and currency crises," European Economic Review, Elsevier, vol. 44(4-6), pages 728-738, May.
  3. 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.
  4. Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 2004. "Financial Development and the Instability of Open Economies," NBER Working Papers 10246, National Bureau of Economic Research, Inc.
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  8. Azariadis, Costas & Smith, Bruce, 1998. "Financial Intermediation and Regime Switching in Business Cycles," American Economic Review, American Economic Association, vol. 88(3), pages 516-36, June.
  9. Deneckere, Raymond & Pelikan, Steve, 1986. "Competitive chaos," Journal of Economic Theory, Elsevier, vol. 40(1), pages 13-25, October.
  10. 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.
  11. Boldrin, Michele & Montrucchio, Luigi, 1986. "On the indeterminacy of capital accumulation paths," Journal of Economic Theory, Elsevier, vol. 40(1), pages 26-39, October.
  12. Philippe Aghion & Abhijit Banerjee & Thomas Piketty, 1999. "Dualism And Macroeconomic Volatility," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1359-1397, November.
  13. Michael J. Stutzer, 1980. "Chaotic dynamics and bifurcation in a macro model," Staff Report 55, Federal Reserve Bank of Minneapolis.
  14. 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.
  15. Day, Richard H, 1982. "Irregular Growth Cycles," American Economic Review, American Economic Association, vol. 72(3), pages 406-14, June.
  16. Stutzer, Michael J., 1980. "Chaotic dynamics and bifurcation in a macro model," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 353-376, May.
  17. 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.
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Citations

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Cited by:
  1. Laurent Augier & Wahyoe Soedarmono, 2011. "Threshold Effect and Financial Intermediation in Economic Development," Economics Bulletin, AccessEcon, vol. 31(1), pages 342-357.
  2. Gomes, Orlando, 2007. "On the allocation of credit and aggregate fluctuations," MPRA Paper 2889, University Library of Munich, Germany.
  3. Elsa Orgiazzi, 2007. "Financial Development And Instability:The Role Of The Labour Share," Working Papers halshs-00353889, HAL.
  4. Matsuoka, Tarishi & Naito, Katsuyuki & Nishida, Keigo, 2013. "The Politics of Financial Development and Capital Accumulation," MPRA Paper 50181, University Library of Munich, Germany.
  5. Gomes, Orlando, 2007. "Socially determined time preference in discrete time," MPRA Paper 3442, University Library of Munich, Germany.
  6. 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.
  7. Orlando Gomes, 2010. "Deterministic randomness in a model of finance and growth," Journal of Evolutionary Economics, Springer, vol. 20(1), pages 95-114, January.
  8. 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.
  9. Kunieda, Takuma, 2008. "Finance and Growth Cycles," MPRA Paper 11340, University Library of Munich, Germany.
  10. Gomes, Orlando, 2007. "Constraints on credit, consumer behaviour and the dynamics of wealth," MPRA Paper 2886, University Library of Munich, Germany.
  11. Gomes, Orlando, 2007. "Time preference and cyclical endogenous growth," MPRA Paper 3282, University Library of Munich, Germany.
  12. 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.
  13. Patrick-Antoine Pintus, 2007. "Procyclical International Capital Flows, Debt Overhang And Volatility," Working Papers halshs-00353596, HAL.
  14. 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.
  15. Das, Satya P., 2008. "Some mechanisms of terror cycles," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 644-656, September.
  16. Gomes, Orlando, 2007. "Nonlinear dynamics in a model of financial development with a risk premium," MPRA Paper 2887, University Library of Munich, Germany.

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