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Sunspot Fluctuations: A Way Out of the Development Trap?

Listed author(s):
  • Sergey Slobodyan

This paper contains a study of stochastic stability of the development trap in a model of economic growth when the production function is subject to externalities and, as a result, the development trap steady state ins indeterminate. In the presence of indeterminacy, sunspot equilibria can exist. I study the stability of the trap, subject to continuous-time sunspot shocks, modeled as a Wiener process. Global dynamics of the deterministic and stochastic versions of the model are completely characterized. Numerical simulations of the process of escape from the poverty trap caused by the presence of sunspot fluctuations are conducted. Escape time and probabilities are estimated analytically and numerically as a function of initial conditions and the model's parameters.

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File URL: http://www.cerge-ei.cz/pdf/wp/Wp175.pdf
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Paper provided by The Center for Economic Research and Graduate Education - Economics Institute, Prague in its series CERGE-EI Working Papers with number wp175.

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Date of creation: May 2001
Handle: RePEc:cer:papers:wp175
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