Chaotic dynamics in a cash-in-advance economy

Ronald Michener, B. Ravikumar

Research output: Contribution to journalArticlepeer-review

33 Scopus citations

Abstract

This paper introduces sufficient conditions for the existence of deterministic cycles and chaos in cash-in-advance models, building on the earlier work of . Chaotic equilibria are shown to be particularly likely in the cash-in-advance model, because of a unique characteristic of such models: a discontinuous derivative in the difference equation map at the satiation level of real balances. The existence of a kink means that chaotic equilibria may exist without implausibly large curvatures in the utility function. Since a chaotic time series that makes use of the kink would sometimes exhibit zero nominal interest rates, the paper also gives an example of chaos in which nominal interest rates remain strictly positive.

Original languageEnglish (US)
Pages (from-to)1117-1137
Number of pages21
JournalJournal of Economic Dynamics and Control
Volume22
Issue number7
DOIs
StatePublished - May 25 1998

Keywords

  • Cash-in-advance
  • Chaos
  • Cycles

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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