Advanced Search
MyIDEAS: Login to save this paper or follow this series

Global indeterminacy in locally determinate RBC models

Contents:

Author Info

  • Tarek Coury
  • Yi Wen

Abstract

We investigate the global dynamics of RBC models with production externalities. We confirm that purely local analysis does not tell the full story. With externalities smaller than required for local indeterminacy, local analysis shows the steady state to be a saddle, implying a unique equilibrium. But global analysis reveals the steady state is surrounded by stable deterministic cycles. Our analysis suggests that indeterminacy is more robust than previously realized, and the results strengthen the view that caution should be exercised when linearized versions of this class of RBC models are used in applied work.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://research.stlouisfed.org/wp/2007/2007-029.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2007-029.

as in new window
Length:
Date of creation: 2007
Date of revision:
Handle: RePEc:fip:fedlwp:2007-029

Contact details of provider:
Postal: P.O. Box 442, St. Louis, MO 63166
Fax: (314)444-8753
Web page: http://www.stlouisfed.org/
More information through EDIRC

Order Information:
Email:

Related research

Keywords: Business cycles;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Mitra, Tapan & Nishimura, Kazuo, 2001. "Introduction to Intertemporal Equilibrium Theory: Indeterminacy, Bifurcations, and Stability," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 1-12, January.
  2. Stefano Eusepi & Jess Benhabib, 2005. "The Design of Monetary and Fiscal Policy: A Global Perspective," Computing in Economics and Finance 2005, Society for Computational Economics 388, Society for Computational Economics.
  3. Burnside, A Craig & Eichenbaum, Martin & Rebelo, Sérgio, 1995. "Capital Utilization and Returns to Scale," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1221, C.E.P.R. Discussion Papers.
  4. Lee E. Ohanian, 2001. "Why Did Productivity Fall So Much during the Great Depression?," American Economic Review, American Economic Association, vol. 91(2), pages 34-38, May.
  5. Kim, Jinill, 2003. "Indeterminacy And Investment Adjustment Costs: An Analytic Result," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 7(03), pages 394-406, June.
  6. repec:cup:macdyn:v:6:y:2002:i:5:p:633-64 is not listed on IDEAS
  7. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 193-227, April.
  8. Venditti, Alain, 1998. "Indeterminacy and endogenous fluctuations in two-sector growth models with externalities," Journal of Economic Behavior & Organization, Elsevier, vol. 33(3-4), pages 521-542, January.
  9. repec:wop:humbsf:2002-35 is not listed on IDEAS
  10. Stephanie Schmitt-Grohe, 1995. "Comparing four models of aggregate fluctuations due to self-fulfilling expectations," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-17, Board of Governors of the Federal Reserve System (U.S.).
  11. Benhabib, Jess & Farmer, Roger E.A., 1996. "Indeterminacy and Sector-Specific Externalities," Working Papers, C.V. Starr Center for Applied Economics, New York University 96-12, C.V. Starr Center for Applied Economics, New York University.
  12. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
  13. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  14. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(2), pages 249-83, April.
  15. Roger E.A. Farmer & Jang Ting Guo, 1992. "Real Business Cycles and the Animal Spirits Hypothesis," UCLA Economics Working Papers, UCLA Department of Economics 680, UCLA Department of Economics.
  16. Barinci, Jean-Paul & Cheron, Arnaud, 2001. "Sunspots and the Business Cycle in a Finance Constrained Economy," Journal of Economic Theory, Elsevier, vol. 97(1), pages 30-49, March.
  17. Jean-Michel Grandmont & P, A, Pintus & R, De Vilder, 1997. "Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles," Working Papers, Centre de Recherche en Economie et Statistique 97-28, Centre de Recherche en Economie et Statistique.
  18. Thomas Lubik & Frank Schorfheide, 2002. "Testing for Indeterminacy:An Application to U.S. Monetary Policy," Economics Working Paper Archive 480, The Johns Hopkins University,Department of Economics, revised Jun 2003.
  19. 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.
  20. Guo, Jang-Ting & Sturzenegger, Federico, 1998. "Crazy Explanations of International Business Cycles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 111-33, February.
  21. 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.
  22. Bennett, R.L. & Farmer, R.E.A., 1999. "Indeterminacy with Non-Separable Utility," Economics Working Papers, European University Institute eco99/34, European University Institute.
  23. Pintus, Patrick & Sands, Ducan & De Vilder, Robin, 1996. "On the transition from local regular to global irregular fluctuations," CEPREMAP Working Papers (Couverture Orange) 9617, CEPREMAP.
  24. Greiner Alfred & Semmler Willi, 1996. "Saddle Path Stability, Fluctuations, and Indeterminacy in Economic Growth," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 1(2), pages 1-16, July.
  25. 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.
  26. Benhabib, J. & Farmer, R.E.A, 1991. "Indeterminacy and Increasing Returns," Papers, Cambridge - Risk, Information & Quantity Signals 165, Cambridge - Risk, Information & Quantity Signals.
  27. Benhabib, Jess & Nishimura, Kazuo, 1996. "Indeterminancy and Sunspots with Constant Returns," Working Papers, C.V. Starr Center for Applied Economics, New York University 96-44, C.V. Starr Center for Applied Economics, New York University.
  28. Harrison, Sharon G. & Weder, Mark, 2006. "Did sunspot forces cause the Great Depression?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(7), pages 1327-1339, October.
  29. Roberto Perli, . "Indeterminacy, Home Production, and the Business Cycle: a Calibrated Analysis," CARESS Working Papres, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences 97-4, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  30. Weder, Mark, 1997. "Animal spirits, technology shocks and the business cycle," SFB 373 Discussion Papers 1997,61, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  31. Mitra, Tapan & Nishimura, Kazuo, 2001. "Discounting and Long-Run Behavior: Global Bifurcation Analysis of a Family of Dynamical Systems," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 256-293, January.
  32. Benhabib, Jess & Day, Richard H., 1982. "A characterization of erratic dynamics in, the overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 4(1), pages 37-55, November.
  33. Azariadis, Costas & Guesnerie, Roger, 1986. "Sunspots and Cycles," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(5), pages 725-37, October.
  34. Harrison, Sharon G., 2001. "Indeterminacy in a model with sector-specific externalities," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 25(5), pages 747-764, May.
  35. Berthold Herrendorf & Akos Valentinyi, 2002. "Determinacy Through Intertemporal Capital Adjustment Costs," IEHAS Discussion Papers 0209, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  36. Marianne Baxter & Robert G. King, 1991. "Productive externalities and business cycles," Discussion Paper / Institute for Empirical Macroeconomics 53, Federal Reserve Bank of Minneapolis.
  37. Roger E. A. Farmer, 1999. "Macroeconomics of Self-fulfilling Prophecies, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062038, December.
  38. Michener, Ronald & Ravikumar, B., 1998. "Chaotic dynamics in a cash-in-advance economy," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 22(7), pages 1117-1137, May.
  39. Benhabib, Jess & Nishimura, Kazuo, 1979. "The hopf bifurcation and the existence and stability of closed orbits in multisector models of optimal economic growth," Journal of Economic Theory, Elsevier, vol. 21(3), pages 421-444, December.
  40. repec:cup:macdyn:v:7:y:2003:i:3:p:394-406 is not listed on IDEAS
  41. Harold L. Cole & Lee E. Ohanian, 1999. "The Great Depression in the United States from a neoclassical perspective," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win, pages 2-24.
  42. Wen, Yi, 1998. "Capacity Utilization under Increasing Returns to Scale," Journal of Economic Theory, Elsevier, vol. 81(1), pages 7-36, July.
  43. Benhabib, J. & Meng, Q. & Nishimura, K., 1999. "Indeterminacy Under Constant Returns to Scale in Multisector Economies," Working Papers, C.V. Starr Center for Applied Economics, New York University 99-17, C.V. Starr Center for Applied Economics, New York University.
  44. Xiao, Wei, 2004. "Can indeterminacy resolve the cross-country correlation puzzle?," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 28(12), pages 2341-2366, December.
  45. Stephanie Schmitt-Grohe, 1998. "Endogenous business cycles and the dynamics of output, hours, and consumption," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1998-19, Board of Governors of the Federal Reserve System (U.S.).
  46. Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 6(05), pages 633-664, November.
  47. Woodford, Michael, 1986. "Stationary sunspot equilibria in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 40(1), pages 128-137, October.
  48. Wen, Yi, 2001. "Understanding self-fulfilling rational expectations equilibria in real business cycle models," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 25(8), pages 1221-1240, August.
  49. Mitra, Tapan, 2001. "A Sufficient Condition for Topological Chaos with an Application to a Model of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 133-152, January.
  50. Harrison, Sharon G. & Weder, Mark, 2002. "Did sunspot cause the Great Depression?," SFB 373 Discussion Papers 2002,35, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  51. Weder, Mark, 1998. "Fickle Consumers, Durable Goods, and Business Cycles," Journal of Economic Theory, Elsevier, vol. 81(1), pages 37-57, July.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Yi Wen & Huabin Wu, 2011. "Dynamics of externalities: a second-order perspective," Review, Federal Reserve Bank of St. Louis, issue May, pages 187-206.
  2. Chen, Yan & Zhang, Yan, 2008. "Tariff Policy, Increasing Returns and Endogenous Fluctuations," MPRA Paper 10061, University Library of Munich, Germany.
  3. Daniel R. Carroll & Eric R. Young, 2009. "A note on sunspots with heterogeneous agents," Working Paper 0906, Federal Reserve Bank of Cleveland.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:2007-029. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.