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Computing Center Manifolds: A Macroeconomic Example

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  • Alex Haro
  • Pere Gomis-Poruqeras

Abstract

When crossing the boundary of stability of a given dynamical system only indicates a bifurcation point and the type of the bifurcating solutions. But it doesn't tell us how and how many new solutions bifurcate or disappear in a bifurcation point. To answer this question one has to take into account the leading nonlinear terms. The Center manifold theorem helps to reduce the dimensionality of the phase space to the dimensionality of the so-called center manifold which in the bifurcation point is tangentially to the eigenspace of the marginal modes of the linear stability analysis. The center manifold theorem allows the dynamics to be projected onto the center manifold without loosing any significant aspect of the dynamics. Thus, the dynamics near a stationary co-dimension-one bifurcation can be decribed by an effective dynamics in a one-dimensional subspace. The dynamics projected onto the center manifold can by transformed to so-called normal forms by a nonlinear transformation of the phase space variables. In this paper we employ the techniques suggested by the center manifold theorem and explore the dynamics of an economic system as it moves away from the steady state. In particular we conisder the model by Azariadis, Bullard and Smith (2001) which is a dynamic general equilibrium model in which privately-issued liabilities may circulate, either by themselves, or alongside a stock of outside money which yileds a center manifold.

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 38.

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Date of creation: 11 Aug 2004
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Handle: RePEc:sce:scecf4:38

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Keywords: Center Manifolds; Nonlinear Dynamics;

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  1. Michele Boldrin & Aldo Rustichini, 2010. "Growth and Indeterminacy in Dynamic Models with Externalities," Levine's Working Paper Archive 1382, David K. Levine.
  2. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  3. Gomis-Porqueras, Pere & Haro, Alex, 2007. "Global bifurcations, credit rationing and recurrent hyperinflations," Journal of Economic Dynamics and Control, Elsevier, vol. 31(2), pages 473-491, February.
  4. 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.
  5. Azariadis, Costas & Guesnerie, Roger, 1986. "Sunspots and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 725-37, October.
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