Sunspot Fluctuations: A Way Out of the Development Trap?

Sergey Slobodyan
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Sergey Slobodyan: CERGE-EI

Macroeconomics from EconWPA

Abstract: 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.

Keywords: development trap; indeterminacy; stochastic stability; sunspots (search for similar items in EconPapers)
JEL-codes: E32 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev
Date: Written 2001-06-13
Note: Type of Document - Acrobat PDF; pages: 40 ; figures: included
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http://129.3.20.41/eps/mac/papers/0106/0106001.pdf (application/pdf)

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