Endogenous Instability in Credit-Constrained Emerging Economies with Leontief Technology
This work provides a framework to analyze the role of financial development as a source of endogenous instability in emerging economies subject to moral hazard problems. We propose and study a dynamic model describing a small open economy with a tradeable good produced by internationally mobile capi...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Hindawi Limited
2008-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2008/196494 |
| Summary: | This work provides a framework to analyze the role of financial development
as a source of endogenous instability in emerging economies
subject to moral hazard problems. We propose and study a dynamic
model describing a small open economy with a tradeable good produced
by internationally mobile capital and a country specific input, using Leontief
technology. We demonstrate that emerging markets could be endogenously
unstable since large capital inflows increase risk and exacerbate
asymmetric information problems, according to empirical evidences. Using
bifurcation and stability analysis, we describe the properties of the
system attractors, we assess the plausibility for complex dynamics and, we
find out that border collision bifurcations can emerge due to the fact that
the state space is piecewise smooth. As a consequence, when a fixed or
periodic point loses its stability, the final dynamics may become suddenly
chaotic. This fact may explain how financial crises occurred in emerging
economies. |
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| ISSN: | 1026-0226 1607-887X |