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- Title
Irregular Growth Cycles.
- Authors
Day, Richard H.
- Abstract
This article uses the familiar, neoclassical theory of capital accumulation to show how complex behavior can emerge from quite simple economic structures. Indeed, when sufficient nonlinearities and a production lag are present, the interaction alone of the propensity to save and the productivity of capital can lead to growth cycles that exhibit a wandering, saw tooth pattern not unlike those observed in reality. These fluctuations need not converge to a cycle of any regular periodicity so they are not quasi periodic. This analysis makes use of the mathematical theory of chaos, which, in the form exploited here, originated in the work of researcher Edward Lorenz. A formal definition of chaos and sufficient conditions for chaotic trajectories were provided in a seminal paper by researchers T-Y Li and James Yorke. Jess Benhabib and the author himself introduced this theory into economics, where they showed that sequences of rational choices could be erratic when preferences depend on experience in a certain way.
- Subjects
SAVINGS; ECONOMIC development; ECONOMICS; LORENZ, Edward N., 1917-2008; YORKE, James; MATHEMATICAL models of economics; ECONOMIC structure; NONLINEAR theories
- Publication
American Economic Review, 1982, Vol 72, Issue 3, p406
- ISSN
0002-8282
- Publication type
Article