Global Indeterminacy in Locally Determinate RBC Models

18 Pages Posted: 10 Aug 2007

See all articles by Tarek Coury

Tarek Coury

University of Oxford

Yi Wen

Federal Reserve Bank of St. Louis - Research Department; Tsinghua University

Date Written: August 2007

Abstract

We investigate the global dynamics of RBC models with production externalities. We confirm that purely local analysis does not tell the full story. With externalities smaller than required for local indeterminacy, local analysis shows the steady state to be a saddle, implying a unique equilibrium. But global analysis reveals the steady state is surrounded by stable deterministic cycles. Our analysis suggests that indeterminacy is more robust than previously realized, and the results strengthen the view that caution should be exercised when linearized versions of this class of RBC models are used in applied work.

Keywords: Global Indeterminacy, Real Business Cycles, Sunspots, Chaos, Limit Cycles, Bifurcation Analysis

JEL Classification: C62, E13, E32

Suggested Citation

Coury, Tarek and Wen, Yi, Global Indeterminacy in Locally Determinate RBC Models (August 2007). Available at SSRN: https://ssrn.com/abstract=1005416 or http://dx.doi.org/10.2139/ssrn.1005416

Tarek Coury (Contact Author)

University of Oxford ( email )

Department of Economics
Manor Road Building, Manor Road
Oxford, Oxfordshire OX13UQ
United Kingdom

Yi Wen

Federal Reserve Bank of St. Louis - Research Department ( email )

411 Locust St
Saint Louis, MO 63011
United States
314-444-8559 (Phone)
314-444-8731 (Fax)

Tsinghua University ( email )

Beijing, 100084
China

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