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Forward and backward dynamics in implicitly defined overlapping generations models

[journal article]

Gardini, Laura; Hommes, Cars; Tramontana, Fabio; Vilder, Robin de

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Please use the following Persistent Identifier (PID) to cite this document:http://nbn-resolving.de/urn:nbn:de:0168-ssoar-293018

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Abstract In dynamic economic models derived from optimization principles, the forward equilibrium dynamics may not be uniquely defined, while the backward dynamics is well defined. We derive properties of the global forward equilibrium paths based on properties of the backward dynamics. We propose the framework of iterated function systems (IFS) to describe the set of forward equilibria and apply the IFS framework to a one-and a two-dimensional version of the overlapping generations (OLG)-model. We show that if the backward dynamics is chaotic and has a homo-clinic orbit (a "snap-back repeller"), the set of forward equilibrium paths converges to a fractal attractor. Forward equilibria may be interpreted as sunspot equilibria, where a random sunspot sequence determines equilibrium selection at each date.
Keywords chaos
Classification Political Economy; Economic Statistics, Econometrics, Business Informatics
Free Keywords E32; C62; C02; Forward and backward dynamics; Homoclinic orbit; Snap-back repellor; Sunspot equilibria; Overlapping generations models
Document language English
Publication Year 2009
Page/Pages p. 110-129
Journal Journal of Economic Behavior & Organization, 71 (2009) 2
DOI http://dx.doi.org/10.1016/j.jebo.2008.09.010
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)