Introduction to Market Psychology and Nonlinear Endogenous Business Cycles

Abstract

The purpose of this symposium is to present geometric methods that are useful to study multiple equilibria and endogenous fluctuations in simple two-dimensional macroeconomic models with a single predetermined variable. Characterizing the support of a sunspot equilibrium by its invariance properties in the underlying deterministic dynamics generates a complete description of stochastic endogenous fluctuations near a stationary state and along local bifurcations. Graphical methods to perform sensitivity analysis of local indeterminacy and bifurcations, with respect to variations of uncertain economic parameters, are also presented. These methods are applied to specific macroeconomic models with constant returns to scale, with external increasing returns, and with imperfect competition.Journal of Economic LiteratureClassification Numbers: E32, C62.