A piecewise linear model of credit traps and credit cycles: a complete characterization |
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| Authors: | Kiminori Matsuyama Iryna Sushko Laura Gardini |
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| Institution: | 1.Department of Economics,Northwestern University,Evanston,USA;2.Kyiv School of Economics,Kyiv,Ukraine;3.Institute of Mathematics,National Academy of Sciences of Ukraine,Kyiv,Ukraine;4.Department of Economics, Society and Politics,University of Urbino,Urbino,Italy |
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| 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. |
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