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Global indeterminacy in locally determinate RBC models

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  • Tarek Coury
  • Yi Wen

Abstract

We investigate the global dynamics of RBC models with production externalities. We confirm that purely local analysis does not tell the full story. With externalities smaller than required for local indeterminacy, local analysis shows the steady state to be a saddle, implying a unique equilibrium. But global analysis reveals the steady state is surrounded by stable deterministic cycles. Our analysis suggests that indeterminacy is more robust than previously realized, and the results strengthen the view that caution should be exercised when linearized versions of this class of RBC models are used in applied work.

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  • Tarek Coury & Yi Wen, 2007. "Global indeterminacy in locally determinate RBC models," Working Papers 2007-029, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2007-029
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    Cited by:

    1. Yi Wen & Huabin Wu, 2011. "Dynamics of externalities: a second-order perspective," Review, Federal Reserve Bank of St. Louis, vol. 93(May), pages 187-206.
    2. Chen, Yan & Zhang, Yan, 2008. "Tariff Policy, Increasing Returns and Endogenous Fluctuations," MPRA Paper 10061, University Library of Munich, Germany.
    3. Daniel R. Carroll & Eric Young, 2009. "A note on sunspots with heterogeneous agents," Working Papers (Old Series) 0906, Federal Reserve Bank of Cleveland.

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