Global indeterminacy in locally determinate RBC models

Tarek Coury () and Yi Wen

No 2007-029, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We investigate the global dynamics of RBC models with production externalities. We confirm that purely local analysis does not tell the full story. With externalities smaller than required for local indeterminacy, local analysis shows the steady state to be a saddle, implying a unique equilibrium. But global analysis reveals the steady state is surrounded by stable deterministic cycles. Our analysis suggests that indeterminacy is more robust than previously realized, and the results strengthen the view that caution should be exercised when linearized versions of this class of RBC models are used in applied work.

Keywords: Business; cycles (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-bec and nep-dge
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Citations: View citations in EconPapers (3)

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