Border Collision Bifurcations in Boom and Bust Cycles

Ingrid Kubin, Laura Gardini

Publication: Working/Discussion PaperWU Working Paper

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Abstract

Boom and bust cycles are widely documented in the literature on industry dynamics. Rigidities and delays in capacity adjustment in combination with bounded rational behavior have been identified as central driving forces. We construct a model that features only these two elements and we show that this is indeed sufficient to reproduce some stylized facts of a boom and bust cycle. The
bifurcation diagrams summarizing the dynamic behavior reveal complex cycles and in particular also abrupt changes in the nature of these cycles. We apply new insights from the mathematical theory of piecewise smooth dynamic systems - in particular, results from the theory of border collision bifurcations - and show that the very existence of borders such as capacity constraints or nonnegativity
constraints may lie behind abrupt changes in the dynamic behavior of economic variables. (author's abstract)
Original languageEnglish
Place of PublicationVienna
PublisherWU Vienna University of Economics and Business
DOIs
Publication statusPublished - 1 Mar 2012

Publication series

SeriesDepartment of Economics Working Paper Series
Number137

WU Working Paper Series

  • Department of Economics Working Paper Series

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