Deterministic randomness in a model of finance and growth

Gomes, Orlando (2007): Deterministic randomness in a model of finance and growth.

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.

• Item Type: MPRA Paper
• Institution: Escola Superior de Comunicação Social - Instituto Politécnico de Lisboa
• Language: English
• Keywords: Financial development; Endogenous business cycles; Endogenous growth; Credit to consumption; Local bifurcations; Nonlinear dynamics; Chaos
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C62 - Existence and Stability Conditions of Equilibrium; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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