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Border Collision Bifurcations in Boom and Bust Cycles

Kubin, Ingrid and Gardini, Laura (2012) Border Collision Bifurcations in Boom and Bust Cycles. Department of Economics Working Paper Series, 137. WU Vienna University of Economics and Business, Vienna.

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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)

Item Type: Paper
Keywords: boom and bust cycle / cobweb dynamics / piecewise smooth system / border collision bifurcation / Konjunkturzyklus / mathematisches Modell / Bifurkation <Mathematik>
Classification Codes: RVK QC 330; JEL B52, C61, C62, C63, D41
Divisions: Departments > Volkswirtschaft
Depositing User: C├ęcile Undreiner
Date Deposited: 02 Apr 2012 11:56
Last Modified: 19 Oct 2014 06:23
URI: http://epub.wu.ac.at/id/eprint/3490

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