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From Sunspots to Black Holes: Singular dynamics in macroeconomic models

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Abstract

We present conditions for the emergence of singularities in DGE models. We distinguish between slow-fast and impasse singularity types, review geometrical methods to deal with both types of singularity and apply them to DGE dynamics. We find that impasse singularities can generate new types of DGE dynamics, in particular temporary determinacy/indeterminacy. We illustrate the different nature of the two types of singularities and apply our results to two simple models: the Benhabib and Farmer (1994) model and one with a cyclical fiscal policy rule.

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  • Brito, Paulo & Costa, Luís F. & Dixon, Huw David, 2016. "From Sunspots to Black Holes: Singular dynamics in macroeconomic models," Cardiff Economics Working Papers E2016/6, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2016/6
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    1. Brito, Paulo, 2016. "Government debt, fiscal rules and singular growth dynamics," MPRA Paper 74617, University Library of Munich, Germany.

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    Keywords

    slow-fast singularities; impasse singularities; macroeconomic dynamics; temporary indeterminacy;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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