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Nonlinear dynamics in a model of financial development with a risk premium

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Author Info
Gomes, Orlando

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Abstract

The relation between the degree of financial development of an economy (measured by the extent in which constraints to credit exist) and fluctuations affecting the trend of economic growth, is a relevant theme of discussion in macroeconomics. Some of the literature on this field argues that the cyclical behaviour is generated endogenously, under the model’s assumptions, for specific levels of credit availability. Following this line of reasoning, the paper develops a theoretical framework that places a risk premium over the international interest rate as the centre piece of the explanation for the occurrence of endogenous business cycles, under particular levels of financial development. The risk premium penalizes the borrowing capacity of the less wealth endowed countries. The analysis explores both local and global dynamics.

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File URL: http://mpra.ub.uni-muenchen.de/2887/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2887.

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Date of creation: Feb 2007
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Handle: RePEc:pra:mprapa:2887

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Related research
Keywords: Financial development; Credit constraints; Risk premia; Endogenous business cycles; Nonlinear dynamics; Chaos;

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Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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References listed on IDEAS
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  1. Philippe AGHION & Philippe BACCHETTA & Abhijit BANERJEE, 1999. "A Simple Model of Monetary Policy and Currency Crises," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9914, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
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  2. repec:cup:macdyn:v:6:y:2002:i:5:p:633-64 is not listed on IDEAS
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  7. Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," The Quarterly Journal of Economics, MIT Press, vol. 120(1), pages 173-222, January.
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  8. Paul Harrison & Oren Sussman & Joseph Zeira, 1999. "Finance and growth: theory and new evidence," Finance and Economics Discussion Series 1999-35, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  21. Christiano, Lawrence J. & G. Harrison, Sharon, 1999. "Chaos, sunspots and automatic stabilizers," Journal of Monetary Economics, Elsevier, vol. 44(1), pages 3-31, August. [Downloadable!] (restricted)
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  22. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2004. "Financial development and the instability of open economies," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1077-1106, September. [Downloadable!] (restricted)
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  23. repec:cup:macdyn:v:5:y:2001:i:3:p:413-33 is not listed on IDEAS
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  25. Caballe, Jordi & Jarque, Xavier & Michetti, Elisabetta, 2006. "Chaotic dynamics in credit constrained emerging economies," Journal of Economic Dynamics and Control, Elsevier, vol. 30(8), pages 1261-1275, August. [Downloadable!] (restricted)
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    Other versions:
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