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Business Cycles, Bifurcations and Chaos in a Neo-Classical Model with Investment Dynamics

[journal article]

Hallegatte, Stéphane; Ghil, Michael; Dumas, Patrice; Hourcade, Jean-Charles

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Please use the following Persistent Identifier (PID) to cite this document:http://nbn-resolving.de/urn:nbn:de:0168-ssoar-253879

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Abstract This paper presents a non-equilibrium dynamic model (NEDyM) that introduces investment dynamics and non-equilibrium effects into a Solow growth model. NEDyM can reproduce several typical economic regimes and, for certain ranges of parameter values, exhibits endogenous business cycles with realistic characteristics. The cycles arise from the investment-profit instability and are constrained by the increase in labor costs and the inertia of production capacity. For other parameter ranges, the model exhibits chaotic behavior. These results show that complex variability in the economic system may be due to deterministic, intrinsic factors, even if the long-term equilibrium is neo-classical in nature.
Classification Methods and Techniques of Data Collection and Data Analysis, Statistical Methods, Computer Methods; Basic Research, General Concepts and History of Economics; Economic Statistics, Econometrics, Business Informatics
Free Keywords Macroeconomic dynamics; Non-equilibrium modeling; Business cycles; Investment flexibility
Document language English
Publication Year 2008
Page/Pages p. 57-77
Journal Journal of Economic Behavior & Organization, 67 (2008) 1
DOI http://dx.doi.org/10.1016/j.jebo.2007.05.001
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)