Bifurcation and sunspots in the continuous time equilibrium model with capacity utilization

Abstract

In the present paper, we construct a continuous time model of economic growth with positive externalities and with variable capacity utilization, and study the global equilibrium paths in this model. If there is a homoclinic orbit or a periodic solution in this model, equilibrium is globally indeterminate. We show that positive externalities can yield multiple steady states, a one‐parameter family of homoclinic orbits, and a two‐parameter family of periodic solutions. It is also shown that there exists a sunspot equilibrium in this model.