Chaos and sector-specific externalities

David Stockman

Journal of Economic Dynamics and Control, 2009, vol. 33, issue 12, 2030-2046

Abstract: Benhabib and Farmer [1996. Indeterminacy and sector specific externalities. Journal of Monetary Economics 37, 397-419] explore the possibility of local indeterminacy in a two-sector model with sector-specific externalities. They find that very small sector-specific externalities are sufficient for local indeterminacy. In this case, it is possible to construct sunspot equilibria where extrinsic uncertainty matters. In this paper, I provide a global analysis of their model revealing the existence of Euler equation branching. This branching allows for regime switching equilibria with cycles and chaotic behavior. These equilibria occur whether the "local dynamics" are determinate or indeterminate.

Keywords: Two-sector; model; Regime; switching; Global; indeterminacy; Cycles; Chaos; Differential; inclusion (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Chaos and Sector-specific Externalities (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:33:y:2009:i:12:p:2030-2046

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