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Tariff and Equilibrium Indeterminacy - A Global Analysis

  • Zhang, Yan
  • Chen, Yan
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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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File URL: http://mpra.ub.uni-muenchen.de/18296/1/MPRA_paper_18296.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18296.

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Date of creation: 01 Nov 2009
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Handle: RePEc:pra:mprapa:18296
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  1. Schmitt-Grohe, Stephanie & Uribe, Martin, 1997. "Balanced-Budget Rules, Distortionary Taxes, and Aggregate Instability," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 976-1000, October.
  2. Stockman, David R., 2010. "Balanced-budget rules: Chaos and deterministic sunspots," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1060-1085, May.
  3. Michener, Ronald & Ravikumar, B., 1998. "Chaotic dynamics in a cash-in-advance economy," Journal of Economic Dynamics and Control, Elsevier, vol. 22(7), pages 1117-1137, May.
  4. Luís Francisco Aguiar-Conraria & Yi Wen, 2004. "Foreign Trade and Equilibrium Indeterminacy," NIPE Working Papers 5/2004, NIPE - Universidade do Minho.
  5. Laura Gardini & Cars Hommes & Fabio Tramontana & Robin de Vilder, 2008. "Forward and Backward Dynamics in Implicitly Defined Overlapping Generations Models," Working Papers 0806, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2008.
  6. Luis Aguiar-Conraria & Yi Wen, 2006. "Understanding the large negative impact of oil shocks," Working Papers 2005-042, Federal Reserve Bank of St. Louis.
  7. Julio I. Rotemberg & Michael Woodford, 1994. "Energy Taxes and Aggregate Economic Activity," NBER Chapters, in: Tax Policy and the Economy, Volume 8, pages 159-195 National Bureau of Economic Research, Inc.
  8. Luís Aguiar-Conraria & Yi Wen, 2007. "A note on oil dependence and economic instability," Working Papers 2006-060, Federal Reserve Bank of St. Louis.
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