Deterministic Debt Cycles in Open Economies with Flow Collateral Constraints
Stephanie Schmitt-Grohé and
No 14248, CEPR Discussion Papers from C.E.P.R. Discussion Papers
This paper establishes the existence of deterministic cycles in infinite-horizon open economy models with a flow collateral constraint. It shows that for plausible parameter configurations, the economy has a unique equilibrium exhibiting deterministic cycles in which periods of debt growth are followed by periods of debt deleveraging. In particular, three-period cycles exist, which implies by the Li-Yorke Theorem the presence of cycles of any periodicity and chaos. The paper also shows that deterministic cycles are absent in the Ramsey optimal allocation providing a justification for macroprudential policies even in the absence of uncertainty.
Keywords: capital controls; Chaos; Credit Booms; Deleveraging; Deterministic cycles; flow collateral constraints; Pecuniary externality (search for similar items in EconPapers)
JEL-codes: E32 F38 F41 H23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at email@example.com
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:14248
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... rs/dp.php?dpno=14248
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().