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Deterministic randomness in a model of finance and growth

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  • Gomes, Orlando

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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Bibliographic Info

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

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  1. Piketty, Thomas & Banerjee, Abhijit & Aghion, Philippe, 1997. "Dualism and macroeconomic volatility," CEPREMAP Working Papers (Couverture Orange) 9720, CEPREMAP.
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  3. Cellarier, Laurent, 2006. "Constant gain learning and business cycles," Journal of Macroeconomics, Elsevier, Elsevier, vol. 28(1), pages 51-85, March.
  4. Aloi, Marta & Dixon, Huw D. & Lloyd-Braga, Teresa, 2000. "Endogenous fluctuations in an open economy with increasing returns to scale," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 24(1), pages 97-125, January.
  5. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
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  7. repec:cup:macdyn:v:6:y:2002:i:5:p:633-64 is not listed on IDEAS
  8. Boldrin, Michele & Montrucchio, Luigi, 1986. "On the indeterminacy of capital accumulation paths," Journal of Economic Theory, Elsevier, Elsevier, vol. 40(1), pages 26-39, October.
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  10. Deneckere, Raymond & Pelikan, Steve, 1986. "Competitive chaos," Journal of Economic Theory, Elsevier, Elsevier, vol. 40(1), pages 13-25, October.
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  12. Amable, Bruno & Chatelain, Jean-Bernard & Ralf, Kirsten, 2004. "Credit rationing, profit accumulation and economic growth," Economics Letters, Elsevier, Elsevier, vol. 85(3), pages 301-307, December.
  13. 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.
  14. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
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  16. Ganelli, Giovanni & Tervala, Juha, 2010. "Public infrastructures, public consumption, and welfare in a new-open-economy-macro model," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(3), pages 827-837, September.
  17. Cazzavillan, Guido & Lloyd-Braga, Teresa & Pintus, Patrick, 1996. "Multiple steady states and endogenous fluctuations with increasing returns to scale in production," CEPREMAP Working Papers (Couverture Orange) 9618, CEPREMAP.
  18. Orlando Gomes, 2006. "Routes to chaos in macroeconomic theory," Journal of Economic Studies, Emerald Group Publishing, Emerald Group Publishing, vol. 33(6), pages 437-468, November.
  19. Lloyd-Braga, Teresa & Nourry, Carine & Venditti, Alain, 2007. "Indeterminacy in dynamic models: When Diamond meets Ramsey," Journal of Economic Theory, Elsevier, Elsevier, vol. 134(1), pages 513-536, May.
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  21. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, Elsevier, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934 Elsevier.
  22. David Gross & Nicholas Souleles, 2001. "Consumer Response to Changes in Credit Supply: Evidence from Credit Card Data," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 01-10, Wharton School Center for Financial Institutions, University of Pennsylvania.
  23. Boldrin, Michele & Nishimura, Kazuo & Shigoka, Tadashi & Yano, Makoto, 2001. "Chaotic Equilibrium Dynamics in Endogenous Growth Models," Journal of Economic Theory, Elsevier, Elsevier, vol. 96(1-2), pages 97-132, January.
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Cited by:
  1. Michael Wegener, 2014. "Heterogeneous expectations and debt in a growth model for a small open economy," Decisions in Economics and Finance, Springer, Springer, vol. 37(1), pages 125-136, April.
  2. Edward M Feasel & Nobuyuki Kanazawa, 2013. "Sentiment toward Trading Partners and International Trade," Eastern Economic Journal, Palgrave Macmillan, vol. 39(3), pages 309-327.

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