Center projections for smooth difference equations of mixed type

Abstract

We study a class of mixed type difference equations that enjoy a special smoothening property, in the sense that solutions automatically satisfy an associated functional differential equation of mixed type. Using this connection, a finite dimensional center manifold is constructed that captures all solutions that remain sufficiently close to an equilibrium. The results enable a rigorous analysis of a recently developed model in economic theory, that exhibits periodic oscillations in the interest rates of a simple economy of overlapping generations.