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Deterministic randomness in a model of finance and growth

Orlando Gomes

MPRA Paper from University Library of Munich, Germany

Abstract: Following the literature on growth, cycles and financial development, this paper develops an endogenous growth model where the source of endogenous business cycles relates to the allocation of credit between productive investment and consumption. An important role is given to consumer sentiment, because this determines the willingness of households in terms of demand for credit; in particular, optimistic beliefs about the economy’s macro performance deviate financial resources from investment in favour of consumption. The dynamic analysis indicates that Neimark-Sacker and flip bifurcations eventually separate stable and unstable manifolds, and as a result a region of nonlinear motion is generated: cycles of various periodicities and chaotic motion characterize the behaviour of the long run time paths of accumulated wealth, output and consumption.

Keywords: Financial development; Endogenous business cycles; Endogenous growth; Credit to consumption; Local bifurcations; Nonlinear dynamics; Chaos (search for similar items in EconPapers)
JEL-codes: C62 E32 O16 (search for similar items in EconPapers)
Date: 2007-02
New Economics Papers: this item is included in nep-dev, nep-dge and nep-mac
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Journal Article: Deterministic randomness in a model of finance and growth (2010) Downloads
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