Euler Equation Branching

David Stockman ()
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David Stockman: Department of Economics,University of Delaware
Authors registered in the RePEc Author Service: David R. Stockman

No 08-26, Working Papers from University of Delaware, Department of Economics

Abstract: Some macroeconomic models exhibit a type of global indeterminacy known as Euler equation branching (e.g., the one-sector growth model with a production externality). The dynamics in such models are governed by a differential inclusion. In this paper, we show that in models with Euler equation branching there are multiple equilibria and that the dynamics are chaotic. In particular, we provide sufficient conditions for a dynamical system on the plane with Euler equation branching to be chaotic and show analytically that in a neighborhood of a steady state, these sufficient conditions will typically be satisfied. We also extend the results of Christiano and Harrison (JME, 1999) for the one-sector growth model with a production externality. In a more general setting, we provide necessary and sufficient conditions for Euler equation branching in this model. We show that chaotic and cyclic equilibria are possible and that this behavior is not dependent on the steady state being "locally" determinate or indeterminate.

Keywords: global indeterminacy; Euler equation branching; multiple equilibria; cycles; chaos; increasing returns to scale; externality; regime switching (search for similar items in EconPapers)
JEL-codes: E13 E32 E62 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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