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Chaos and Sector-specific Externalities

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Author Info
David R. Stockman () (Department of Economics,University of Delaware)

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Abstract

Benhabib and Farmer (1996) explore the possibility of local indeterminacy in a twosector model with sector-speci c externalities. They nd that very small sector-specific externalities are su cient for local indeterminacy. In this case, it is possible to construct sunspot equilibria where extrinsic uncertainty matters. In this paper, I provide a global analysis of their model revealing the existence of Euler equation branching. This branching allows for regime switching equilibria with cycles and chaotic behavior. These equilibria occur whether the \local dynamics" are determinate or indeterminate.

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File URL: http://www.lerner.udel.edu/economics/WorkingPapers/2007/UDWP2007-17.pdf
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Publisher Info
Paper provided by University of Delaware, Department of Economics in its series Working Papers with number 07-17.

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Length: 25 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:dlw:wpaper:07-17.

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Postal: Purnell Hall, Newark, Delaware 19716
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Web page: http://www.lerner.udel.edu/departments/economics/
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Related research
Keywords: two-sector model; regime switching; global indeterminacy; cycles and chaos;

Find related papers by JEL classification:
E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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References listed on IDEAS
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  1. repec:cup:macdyn:v:6:y:2002:i:5:p:633-64 is not listed on IDEAS
  2. Herrendorf, Berthold & Valentinyi, Akos, 2006. "On the stability of the two-sector neoclassical growth model with externalities," Journal of Economic Dynamics and Control, Elsevier, vol. 30(8), pages 1339-1361, August. [Downloadable!] (restricted)
    Other versions:
  3. Jang-Ting Guo & Kevin Lansing, 1999. "Fiscal policy, increasing returns, and endogenous fluctuations," Working Papers in Applied Economic Theory 99-08, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  4. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June. [Downloadable!] (restricted)
    Other versions:
  5. Benhabib, Jess & Farmer, Roger E.A., 1996. "Indeterminacy and Sector-Specific Externalities," Working Papers 96-12, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  6. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier. [Downloadable!] (restricted)
  7. Harrison, Sharon G. & Weder, Mark, 2002. "Tracing externalities as sources of indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 26(5), pages 851-867, May. [Downloadable!] (restricted)
  8. Boldrin, Michele & Nishimura, Kazuo & Shigoka, Tadashi & Yano, Makoto, 2001. "Chaotic Equilibrium Dynamics in Endogenous Growth Models," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 97-132, January. [Downloadable!] (restricted)
  9. Benhabib, Jess & Schmitt-Grohe, Stephanie & Uribe, Martin, 2001. "The Perils of Taylor Rules," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 40-69, January. [Downloadable!] (restricted)
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  10. 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. [Downloadable!] (restricted)
  11. Sharon G. Harrison, 2003. "Returns to Scale and Externalities in the Consumption and Investment Sectors," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 963-976, October. [Downloadable!] (restricted)
  12. Benhabib Jess & Perli Roberto, 1994. "Uniqueness and Indeterminacy: On the Dynamics of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 63(1), pages 113-142, June. [Downloadable!] (restricted)
  13. Lawrence J. Christiano & Sharon G. Harrison, 1996. "Chaos, Sunspots, and Automatic Stabilizers," NBER Working Papers 5703, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Berthold Herrendorf & Akos Valentinyi, . "On the Stability of the Two-Sector Neoclassical Growth Model with Externalities," Working Papers 2167721, Department of Economics, W. P. Carey School of Business, Arizona State University. [Downloadable!]
  15. Harrison, Sharon G., 2001. "Indeterminacy in a model with sector-specific externalities," Journal of Economic Dynamics and Control, Elsevier, vol. 25(5), pages 747-764, May. [Downloadable!] (restricted)
  16. David R. Stockman, 2008. "Euler Equation Branching," Working Papers 08-26, University of Delaware, Department of Economics. [Downloadable!]
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