The Shilnikov Saddle-Node Bifurcation in a Monetary Policy with Endogenous Time Preference

BELLA, GIOVANNI

2015-01-01

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Abstract

We improve the analysis made in Chang et al (2011), by exploring the possibilities for the raise of global indeterminacy via a Shilnikov saddle-node bifurcation on an invariant circle. This allows us to better understand the determinants for the emergence of endogenous fluctuations in a monetary policy model, and to explain the existence of irregular patterns. Hence, the economy may start at some point to oscillate around the long run equilibrium, and eventually deviate from its saddle-path stable solution, thus locating the economy in a particular optimal converging path that could not coincide with the one corresponding to the lowest desired interest rate.