Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142657
Authors: 
de Mendonça, Pedro
Year of Publication: 
2013
Series/Report no.: 
EERI Research Paper Series 05/2013
Abstract: 
We discuss the implications of nonlinear dynamic phenomena for policy definition in a growing economy. De- parting from the hypothesis that local analysis of economic systems focus the definition of policy on short run outcomes, we propose that to have a clearer perspective on long run outcomes, we have to focus the analysis on the study of local bifurcations and global dynamics instead. This approach, in our opinion, provides a better insight on complex macroeconomic phenomena and allows for a better definition of policy rules in a long run horizon. To demonstrate this hypothesis, we set up a representative agent economy based on neoclassical assumptions, where agents face convex risk premium and investment adjustment costs. This economy describes an endogenous opti- mal growth model, that has solutions given by a nonlinear three-dimensional dynamical system. To evaluate this system, we resort to qualitative analysis methods and show the existence of fold (saddle-node), hopf and fold-hopf bifurcations, in a multiple equilibria environment. Numerical results suggest the absence of local stable solutions for a wide range of parameter values. We then focus our analysis on the complex organization of the economy phase-space and evaluate several conjectures related to the existence of complex nonlinear phenomena in the vicinity of fold-hopf bifurcation points. We relate these conjectures with the hypothesis of endogenous structural change and discuss the implications of complex global dynamic phenomena for long run policy definition.
Subjects: 
Nonlinear Growth Dynamics
Financial Instability
Fold-Hopf Bifurcation
JEL: 
O16
O47
G23
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.