Sunspot Fluctuations: A Way Out of the Development Trap?

Slobodyan, Sergey

doi:10.2139/ssrn.1514542

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Sunspot Fluctuations: A Way Out of the Development Trap?

CERGE-EI Working Paper Series No. 175

40 Pages Posted: 28 Nov 2009

See all articles by Sergey Slobodyan

Sergey Slobodyan

Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences; HSE Moscow

There are 2 versions of this paper

Date Written: May 1, 2001

Abstract

This paper contains a study of stochastic stability of the development trap in a model of economic growth when the production function is subject to externalities and, as a result, the development trap steady state ins indeterminate. In the presence of indeterminacy, sunspot equilibria can exist. I study the stability of the trap, subject to continuous-time sunspot shocks, modeled as a Wiener process. Global dynamics of the deterministic and stochastic versions of the model are completely characterized. Numerical simulations of the process of escape from the poverty trap caused by the presence of sunspot fluctuations are conducted. Escape time and probabilities are estimated analytically and numerically as a function of initial conditions and the model's parameters.

Keywords: development trap, indeterminacy, stochastic stability, sunspots

JEL Classification: E32, O41

Suggested Citation: Suggested Citation

Slobodyan, Sergey and Slobodyan, Sergey, Sunspot Fluctuations: A Way Out of the Development Trap? (May 1, 2001). CERGE-EI Working Paper Series No. 175, Available at SSRN: https://ssrn.com/abstract=1514542 or http://dx.doi.org/10.2139/ssrn.1514542