Productive public expenditures, expectation formations and nonlinear dynamics
In this paper, we investigate the dynamic properties of an overlapping generations' model with capital accumulation and publicly funded inventions under three different expectations: perfect foresight, myopic expectations and adaptive expectations. We show that considering productive public expenditures in the model will increase the dimension of the dynamical system. To study the dynamic behavior of a high-dimensional dynamical system, we focus on the case when the elasticity of publicly funded invention to output is small and approximate the system by using a one-dimensional dynamical system. This approximation method provides an efficient way to rigorously prove the existence of chaos in high-dimensional dynamical systems. We show that when agents are perfectly foresighted, there exists a unique, nontrivial steady state which is a global attractor. Cycles or even chaos may occur under myopic and adaptive expectations when the inter-temporal elasticity of substitution of consumption is large enough. Furthermore, we find that the impact of fiscal policy is sensible to the expectation formation.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chiarella, Carl & He, Xue-Zhong, 2003.
"Dynamics of beliefs and learning under aL-processes -- the heterogeneous case,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 27(3), pages 503-531, January.
- Carl Chiarella & Xue-Zhong He, 2001. "Dynamics of Beliefs and Learning Under aL Processes - The Heterogeneous Case," Research Paper Series 55, Quantitative Finance Research Centre, University of Technology, Sydney.
- Brock, W.A., 1995.
"A Rational Route to Randomness,"
9530, Wisconsin Madison - Social Systems.
- Gustav Feichtinger & Cars Hommes & Alexandra Milik, 1997. "Chaotic consumption patterns in a simple2-D addiction model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 10(1), pages 147-173.
- Paul M Romer, 1999.
"Endogenous Technological Change,"
Levine's Working Paper Archive
2135, David K. Levine.
- Onozaki, Tamotsu & Sieg, Gernot & Yokoo, Masanori, 2003. "Stability, chaos and multiple attractors: a single agent makes a difference," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1917-1938, August.
- Grandmont, Jean-Michel, 1985.
"On Endogenous Competitive Business Cycles,"
Econometric Society, vol. 53(5), pages 995-1045, September.
- Antinolfi, Gaetano & Keister, Todd & Shell, Karl, 2001. "Growth Dynamics and Returns to Scale: Bifurcation Analysis," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 70-96, January.
- Galor, Oded & Ryder, Harl E., 1989. "Existence, uniqueness, and stability of equilibrium in an overlapping-generations model with productive capital," Journal of Economic Theory, Elsevier, vol. 49(2), pages 360-375, December.
- Robert J. Barro, 1988.
"Government Spending in a Simple Model of Endogenous Growth,"
NBER Working Papers
2588, National Bureau of Economic Research, Inc.
- Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
- Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
- Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
- de Vilder, Robin, 1996. "Complicated Endogenous Business Cycles under Gross Substitutability," Journal of Economic Theory, Elsevier, vol. 71(2), pages 416-442, November.
- Chen, Hung-Ju & Li, Ming-Chia, 2008. "Chaotic dynamics in a monetary economy with habit persistence," Journal of Economic Behavior & Organization, Elsevier, vol. 65(2), pages 245-260, February.
- Michel P. & de la Croix, D., 1999.
"Myopic and Perfect Foresight in the OLG Model,"
99a35, Universite Aix-Marseille III.
- Michel, Philippe & de la Croix, David, 1999. "Myopic and perfect foresight in the OLG model," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1999014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Benhabib, Jess & Day, Richard H., 1982. "A characterization of erratic dynamics in, the overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 37-55, November.
- Michele Longo & Vincenzo Valori, 2001. "Existence and stability of equilibria in OLG models under adaptive expectations," Working Papers - Mathematical Economics 2001-01, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
- Yokoo, Masanori, 2000. "Chaotic dynamics in a two-dimensional overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 909-934, June.
- Grandmont, Jean-Michel, 1994.
"Expectations formation and stability of large socioeconomic systems,"
CEPREMAP Working Papers (Couverture Orange)
- Jean-Michel Grandmont, 1998. "Expectations Formation and Stability of Large Socioeconomic Systems," Econometrica, Econometric Society, vol. 66(4), pages 741-782, July.
- Jean-Michel Grandmont, 1997. "Expectations Formation and Stability of Large Socioeconomic Systems," Working Papers 97-27, Centre de Recherche en Economie et Statistique.
- GRANDMONT, Jean-Michel, 1997. "Expectations formation and stability of large socioeconomic systems," CORE Discussion Papers 1997088, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Karl Shell, 2010. "Toward A Theory of Inventive Activity and Capital Accumulation," Levine's Working Paper Archive 1407, David K. Levine.
- Jovanovic, Boyan & Nyarko, Yaw, 1994.
"The Transfer of Human Capital,"
94-25, C.V. Starr Center for Applied Economics, New York University.
- Mitra, Tapan, 2001. "A Sufficient Condition for Topological Chaos with an Application to a Model of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 133-152, January.
- Chiarella, Carl, 1988. "The cobweb model: Its instability and the onset of chaos," Economic Modelling, Elsevier, vol. 5(4), pages 377-384, October.
- Hommes, Cars H., 1994. "Dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand," Journal of Economic Behavior & Organization, Elsevier, vol. 24(3), pages 315-335, August.
When requesting a correction, please mention this item's handle: RePEc:eee:matsoc:v:56:y:2008:i:1:p:109-126. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.