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Chaotic Dynamics in Credit Constrained Emerging Economies

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  • Jordi Caballé
  • Xavier Jarque
  • Elisabetta Michetti

Abstract

This paper analyzes the role of financial development as a source of endogenous instability in small open economies. By assuming that firms face credit constraints, our model displays a complex dynamic behavior for intermediate values of the parameter representing the level of financial development of the economy. The basic implication of our model is that economies experiencing a process of financial development are more unstable than both very underdeveloped and very developed economies. Our instability concept means that small shocks have a persistent effect on the long run behavior of the model and also that economies can exhibit cycles with a very high period or even chaotic dynamic patterns.

Suggested Citation

  • Jordi Caballé & Xavier Jarque & Elisabetta Michetti, 2004. "Chaotic Dynamics in Credit Constrained Emerging Economies," Working Papers 121, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:121
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    References listed on IDEAS

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    More about this item

    Keywords

    Chaotic Dynamics; credit constraints; financial development;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium

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