Tariff and Equilibrium Indeterminacy - A Global Analysis
Zhang (2009) shows that endogenous tariffs and endogenous labor income taxes (Schmitt-Grohe and Uribe, 1997) are equivalent in generating local indeterminacy. Using the method developed by Stockman (2009), we extend Zhang's analysis to prove that they are also equivalent in generating global indeterminacy (chaotic equilibria) under a balanced-budget rule. We show that the existence of Euler equation branching in an arbitrarily small neighborhood of a steady state can imply topological chaos in the sense of Devaney. In addition, the Euler equation branching occurs regardless of the local uniqueness of the equilibrium around the steady state(s).
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"Balanced-Budget Rules, Distortionary Taxes, and Aggregate Instability,"
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5/2004, NIPE - Universidade do Minho.
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- Laura Gardini & Cars Hommes & Fabio Tramontana & Robin de Vilder, 2008.
"Forward and Backward Dynamics in Implicitly Defined Overlapping Generations Models,"
0806, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2008.
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- Luis Aguiar-Conraria & Yi Wen, 2006.
"Understanding the large negative impact of oil shocks,"
2005-042, Federal Reserve Bank of St. Louis.
- Luís Aguiar-Conraria & Yi Wen, 2007. "Understanding the Large Negative Impact of Oil Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 925-944, 06.
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2006-060, Federal Reserve Bank of St. Louis.
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