Chaotic dynamics in credit constrained emerging economies

Jordi Caballé, Xavier Jarque, Elisabetta Michetti

Research output: Contribution to journalArticleResearchpeer-review

19 Citations (Scopus)

Abstract

This paper analyzes the role of financial development as a source of endogenous instability in small open economies. By assuming that firms face credit constraints, our model displays a complex dynamic behavior (with high-period cycles or even chaotic dynamic patterns) for intermediate values of the parameter representing the level of financial development of the economy. We derive sufficient conditions for global stability and we prove that chaos appears via a border collision bifurcation. The basic implication of our model is that economies experiencing a process of financial development are more unstable than both very underdeveloped and very developed economies. © 2005 Elsevier B.V. All rights reserved.
Original languageEnglish
Pages (from-to)1261-1275
JournalJournal of Economic Dynamics and Control
Volume30
DOIs
Publication statusPublished - 1 Aug 2006

Keywords

  • Chaotic dynamics
  • Credit constraints
  • Financial development

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