A piecewise linear model of credit traps and credit cycles: a complete characterization

Kiminori Matsuyama, Iryna Sushko, Laura Gardini*

*Corresponding author for this work

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

We reconsider a regime-switching model of credit frictions which has been proposed in a general framework by Matsuyama for the case of Cobb–Douglas production functions. This results in a piecewise linear map with two discontinuity points and all three branches having the same slope. We offer a complete characterization of the bifurcation structure in the parameter space, as well as of the attracting sets and related basins of attraction in the phase space. We also discuss parameter regions associated with overshooting, leapfrogging, poverty traps, reversal of fortune and growth miracle, as well as cycles with any kind of switching between the expansionary and contractionary phases.

Original languageEnglish (US)
Pages (from-to)119-143
Number of pages25
JournalDecisions in Economics and Finance
Volume41
Issue number2
DOIs
StatePublished - Nov 1 2018

Keywords

  • Border collision bifurcation
  • Growth miracle
  • Macroeconomic model of credit frictions
  • One-dimensional piecewise linear map
  • Poverty traps

ASJC Scopus subject areas

  • Finance
  • Economics, Econometrics and Finance(all)

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