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Deterministic randomness in a model of finance and growth

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Author Info
Gomes, Orlando

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Abstract

Following the literature on growth, cycles and financial development, this paper develops an endogenous growth model where the source of endogenous business cycles relates to the allocation of credit between productive investment and consumption. An important role is given to consumer sentiment, because this determines the willingness of households in terms of demand for credit; in particular, optimistic beliefs about the economy’s macro performance deviate financial resources from investment in favour of consumption. The dynamic analysis indicates that Neimark-Sacker and flip bifurcations eventually separate stable and unstable manifolds, and as a result a region of nonlinear motion is generated: cycles of various periodicities and chaotic motion characterize the behaviour of the long run time paths of accumulated wealth, output and consumption.

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File URL: http://mpra.ub.uni-muenchen.de/2888/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2888.

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Date of creation: Feb 2007
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Handle: RePEc:pra:mprapa:2888

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Related research
Keywords: Financial development Endogenous business cycles Endogenous growth Credit to consumption Local bifurcations Nonlinear dynamics Chaos.

Find related papers by JEL classification:
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
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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  1. repec:cup:macdyn:v:6:y:2002:i:5:p:633-64 is not listed on IDEAS
  2. 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!]
  3. Jean-Bernard Chatelain & Bruno Amable & Kirsten Ralf, 2004. "Credit rationing, profit accumulation and economic growth," Post-Print halshs-00112521_v1, HAL. [Downloadable!]
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  4. Piketty, Thomas & Banerjee, Abhijit & Aghion, Philippe, 1997. "Dualism and macroeconomic volatility," CEPREMAP Working Papers (Couverture Orange) 9720, CEPREMAP.
  5. Lloyd-Braga, Teresa & Nourry, Carine & Venditti, Alain, 2007. "Indeterminacy in dynamic models: When Diamond meets Ramsey," Journal of Economic Theory, Elsevier, vol. 134(1), pages 513-536, May. [Downloadable!] (restricted)
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  6. 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)
    Other versions:
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