From Sunspots to Black Holes: Singular dynamics in macroeconomic models : model with endogenous markups

• Main Author: Brito, Paulo
• Publication Date: 2008
• Other Authors: Costa, Luis F., Dixon, Huw
• Format: Article
• Language: eng
• Source: Repositórios Científicos de Acesso Aberto de Portugal (RCAAP)
• Download full: http://hdl.handle.net/10400.5/30458
• topic: Endogenous Mark-Ups; Non-Smooth Dynamics; Discontinuous Induced Bifurcations; Heteroclinic Orbit

We develop a simple Ramsey model with numerous Cournotian industries where entry generates an endogenous markup. The model produces two different regimes: a monopoly and an oligopoly one. We provide a rigorous study of non-smooth dynamics and we also analyse the global dynamics of the model, demonstrating the model exhibits robust heteroclinic orbits, either of the smooth or the non-smooth type. Similar economies may be in any of these regimes and they may change regime along its convergence path. Fixed costs and elasticities of demand, play a crucial role and changing their values may alter the dynamics in a radical way, either by inducing a discontinuous transition or a discontinuous hysteresis.