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Chaos in credit–constrained emerging economies with Leontief technology

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Author Info

  • Cristiana Mammana

    (University of Macerata)

  • Elisabetta Michetti

    (University of Macerata)

Abstract

This work provides a framework to analyze the role of financial development as a source of endogenous instability in emerging economies subject to moral hazard problems. We study a piecewise linear dynamic model describing a small open economy with a tradable good produced by internationally mobile capital and a country specific production factor, using Leontief technology. We demonstrate that emerging markets could be endogenously unstable when large capital in–flows increase risk and exacerbate asymmetric information problems, according to empirical evidence. Using bifurcation and stability analysis we describe the properties of the system attractors, we assess the plausibility for complex dynamics and we find out that border collision bifurcations can emerge.

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Bibliographic Info

Paper provided by Macerata University, Department of Finance and Economic Sciences in its series Working Papers with number 17-2003.

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Length: 19
Date of creation: Oct 2003
Date of revision: Oct 2008
Publication status: Forthcoming in Discrete Dynamics in Nature and Society, Volume 2008, Article ID 196494.
Handle: RePEc:mcr:wpdief:wpaper00017

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Postal: Via Crescimbeni, 20 -62100 Macerata
Phone: 0733.258.201
Fax: 0733.258.205
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Web page: http://www.unimc.it/dief
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Related research

Keywords: border collision bifurcations; complex dynamics; emerging economies; CEECs; Endogenous instability; moral hazard; piecewise linear map.;

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References

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  1. 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.
  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. De Melo, Jaime & Pascale, Ricardo & Tybout, James, 1985. "Microeconomic adjustments in Uruguay during 1973-1981: The interplay of real and financial shocks," World Development, Elsevier, vol. 13(8), pages 995-1015, August.
  4. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2004. "A corporate balance-sheet approach to currency crises," Journal of Economic Theory, Elsevier, vol. 119(1), pages 6-30, November.
  5. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004. "Balance Sheets and Exchange Rate Policy," American Economic Review, American Economic Association, vol. 94(4), pages 1183-1193, September.
  6. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  7. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 1999. "Capital Markets and the Instability of Open Economies," CEPR Discussion Papers 2083, C.E.P.R. Discussion Papers.
  8. Fukuda, Shin-ichi & Hoshi, Takeo & Ito, Takatoshi & Rose, Andrew, 2006. "International Finance," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 455-458, December.
  9. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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.
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