Endogenous Cycles Research Articles

Endogenous cycles in heterogeneous agent models: a state-space approach

Endogenous cycles in heterogeneous agent models: a state-space approach

Imperfect competition in the banking sector and economic instability

We study the impact of competition in the banking sector on the emergence of endogenous cycles driven by self-fulling volatile expectations. We consider an OLG model with two sectors and two household types: workers, who consume and work when young and save through bank deposits; and entrepreneurs, who seek bank loans to finance current consumption and to invest in a productive technology that transforms the consumption good into capital. When old, entrepreneurs rent this capital to firms, who produce the consumption good using capital and labor. All markets are perfectly competitive, except the loans market where banks compete à la Cournot under free entry and exit.In the absence of externalities in the capital producing technology, more competition in the banking sector promotes the emergence of local indeterminacy and sunspots fluctuations. In contrast, under constant social returns to scale in the capital producing technology, bank market power alone triggers the emergence of local indeterminacy. With increasing social returns to scale, both market power and externalities facilitate the emergence of local indeterminacy. Additionally, when banks have market power, steady state multiplicity may emerge, opening the way to global indeterminacy and fluctuations.

Population control, technology, and economic growth

AbstractThis paper examines the effects of China's population control policy on its economic transitions and long‐run equilibrium theoretically and quantitatively. The model‐predicted technological progress is assumed to be driven by population size and education level. With population control, the total number of children decreases; however, the average education level increases. Since the overall effect on technological progress is ambiguous, we performed a quantitative analysis of the model. The results demonstrate that population, technological progress, and income per capita move in endogenous cycles. The impact of China's population control policy depends on the timing of its implementation.

Cleansing by tight credit: Rational cycles and endogenous lending standards

Endogenous cycles emerge through the two-way interaction between lending standards and production fundamentals. Lax lending standards in booms lead to low interest rates and high output but the deterioration of future loan quality. Low borrower quality in turn precipitates tight standards: the economy enters a recession with high credit spreads and low output but a gradual improvement in the quality of loans. This eventually triggers a shift back to a boom with lax lending, and the cycle continues. The capitalization of expert investors determines the strength of capital reallocation in recessions. Furthermore, although the constrained efficient economy is often cyclical, it features both a static and a dynamic externality in credit supply, hence differing from the decentralized equilibrium.

Effects of development aid (grants and loans) on the economic dynamics of the recipient country

This paper investigates the nexus between foreign aid (in both forms: grant and loan), poverty trap, and economic development in a recipient country by using a Solow model with two new ingredients: a development loan and a fixed cost in the production process. The presence of this fixed cost generates a poverty trap. We show that foreign aid may help the country to escape from the poverty trap and converge to a stable steady state in the long run, but only if (i) the country’s characteristics, such as saving rate, initial capital, governance quality, and productivity are good enough, (ii) the fixed cost is relatively low, and (iii) the loan rule is generous enough. We also show that our model with foreign aid has room for endogenous cycles, unlike the standard Solow model.

Endogenous cycles in a competitive search credit market

This paper studies a model of credit based on Gu et al. (2013) with limited commitment and endogenous debt limits in a competitive search market. The credit market exhibits inherent volatility in various ways, depending on whether free entry is allowed. With no free entry, there are deterministic and stochastic cycles even though the fundamentals are deterministic and time invariant. With free entry, there are multiple positive steady states and stochastic cycles including recurrent market freezes and thaws. However, deterministic cycles disappear.

Love of novelty: a source of innovation-based growth… or underdevelopment traps?

AbstractThis study develops a new dynamic general equilibrium model to explore the role of people’s love of novelty as a cultural preference in innovation and innovation-based growth. The model considers (a) an infinitely lived representative consumer who has standard love-of-variety preferences for differentiated products and additional love-of-novelty preferences for new products and (b) technological progress driven by two costly and time-consuming innovation activities, new product development and existing product development. We demonstrate that consumers’ love of novelty is a source of innovation-based growth, wherein economies with a moderate love of novelty can achieve innovation and long-run growth through endogenous cycles between periods in which new product development is active and those in which existing product development is active. However, if love of novelty preference is too weak or too strong, the economy is caught in an underdevelopment trap with less innovation and no long-run growth. We also provide some suggestive empirical evidence that supports our theoretical predictions.

Endogenous Cycles in Collateralized Credit

AbstractThis paper presents a simple and tractable equilibrium model, where collateralized credit emerges under limited commitment. We show that even if there is no time variation in fundamentals, credit trade can fluctuate endogenously over time. In our theory, credit fragilities are associated with endogenous fluctuations in trade probabilities, collateral values, and lending volumes.

COBWEB THEORY, MARKET STABILITY, AND PRICE EXPECTATIONS

Contributors to cobweb theory include many leading economists of the twentieth century. From early beginnings in 1930, cobweb theory played a key role in evolving perceptions of market stability arising from recursive linear models with endogenous dynamics. The focal point of this evolution in cobweb theory is the transition from naive to adaptive to rational price expectations. After a review of the prehistory, this paper examines the first wave of linear cobweb theory initiated by Jan Tinbergen, Henry Schultz, and Umberto Ricci and proceeds to consider the evolution of price expectations in the second wave of cobweb models associated with endogenous cycles in commodity markets. The role of modern cobweb theory in discussions about the stability of market equilibrium and the connection to processes with rational expectations is assessed.

Endogenous Cycles in the Sraffian Supermultiplier Model

Endogenous Cycles in the Sraffian Supermultiplier Model

Metal ion endogenous cycles of CoFe2O4-x induced boosted photocatalytic/PMS degradation toward polycyclic aromatic hydrocarbons.

The rational design of photocatalytic nanomaterials with unique structures is critical for remediating environmental problems and thus reducing ecological risks. In this work, we employed H2 temperature-programmed reduction to modify MFe2O4 (M = Co, Cu, and Zn) photocatalysts for obtaining additional oxygen vacancies. After activation of PMS, naphthalene and phenanthrene degradation rates in the soil phase were increased by 3.24-fold and 1.39-fold, respectively, and 1.38-fold for naphthalene in the aqueous phase by H-CoFe2O4-x. The extraordinary photocatalytic activity is attributed to the oxygen vacancies on the H-CoFe2O4-x surface, which promote electron transfer and thus enhance the redox cycle from Co(III)/Fe(III) to Co(II)/Fe(II). In addition, oxygen vacancies are used as electron traps to hinder the recombination of photogenerated carriers and accelerate the generation of hydroxyl and superoxide radicals. Quenching tests showed that the addition of p-benzoquinone resulted in the greatest decrease in the degradation rate of naphthalene (inhibition of about 85.5%), demonstrating that O2˙- radicals are the main active species in the photocatalytic degradation of naphthalene. H-CoFe2O4-x showed improved degradation performance in synergy with PMS (82.0%, kapp = 0.00714 min-1) while maintaining excellent stability and reusability. Hence, this work provides a promising approach for the design of efficient photocatalysts to degrade persistent organic pollutants in soil and aqueous environments.

A growth model with endogenous technological revolutions and cycles

We propose a new approach to deal with continuous time dynamic model with discontinuity, by which we incorporate gradual innovations and technological leaps, as well as endogenous cycles and long-run growth into one framework. We show that the optimal or equilibrium growth path is a cyclic growth path (CGP) and we develop the mathematical technique to prove the existence and uniqueness of the solution. We provide two basic setups to include the technological leaps in the R&D sector or goods production sector respectively. The growth paths under these two setups show different cyclic features and abundant economic dynamics. Our approach can be easily utilized to evaluate the optimality of the timing of the technological revolution. In the decentralized economy, the technological breakthrough is exogenous to families and always happens too late. The social planner’s problem clarifies two fundamental effects on the optimal growth path, i.e., the “dividend effect” and the “swot-up effect”, induced by discontinuous technological change. Our framework can also serve as a workhorse to address dynamic economic problems with discontinuity.

Metabolomics for determination of non-substance related sleepiness

To date, there is no way to prove non-substance related sleepiness in a forensic context (e.g., after a traffic accident) although it is estimated that drowsy drivers cause 10-20% of all driving accidents. However, the legal situation is clear: the legislator prohibits overtired people from driving a vehicle in road traffic. An objective test for determination of non-substance related sleepiness is desirable. Metabolomics can offer a direct readout of one's phenotype. Changes in physiological functions (such as sleep-wake regulation) are reflected in endogenous metabolism and should therefore be detectable as changes in the metabolic profile, as an increase or decrease of specific metabolites correlating with hours of wakefulness. Our study aimed to assess the feasibility of discovering significant changes in the metabolome associated with hours of wakefulness. Saliva as easy-to-access samples should be used for these studies. Oral fluid samples of 13 volunteers were collected during a previous controlled sleep study that involved a sleep deprivation session and a control session in a randomized cross-over design. After a baseline night of 8 hours sleep, subjects were kept awake for 40 hours in the sleep deprivation session, whereas a 16/8 hours sleep scheme was applied during the control session. Six samples per participant were taken using Salivette® cotton swabs at defined time points across each study session during wakefulness after 0, 16, 25, 31, 38 and 40 hours, respectively. A seventh sample was taken after a recovery night that consisted of 8 hours sleep. Samples were processed using protein precipitation and dilution steps with acetonitrile and analyzed by UPLC-HRMS/MS (Sciex QTOF 6600, IDA) in an untargeted metabolomics setup. Both a reversed-phase (RP) and a hydrophilic liquid interaction (HILIC) column were used and both positive and negative ionization mode were measured to cover a wide range of metabolites. Our analyses detected numerous salivary metabolites in the presented setup (RP: 3845, HILIC: 2434), and many that underwent noticeable changes across the study time course. On the one hand, there are metabolites that increased or decreased in linear manner by hours of wakefulness during sleep deprivation but did not during control session with regular sleep regime. More importantly, some receded to baseline after recovery sleep. On the other hand, significant differences in metabolic profiles were apparent between sleep deprivation and control session. However, high inter-individual differences between study subjects impeded formulation of general statements. In addition to that, there were metabolites that followed a diurnal rhythm (i.e., circadian rhythm), like cortisol, arginine and tyrosine. We have shown that our untargeted metabolomics platform is in principle capable of analyzing salivary metabolites in sleep deprived and control subjects across a time course. Oral fluid is a rich and easily accessible matrix. Due to its simple and non-invasive sampling protocol, it is tailor-made for roadside testing and thus for forensic purposes. While rhythmically changing metabolites are not suitable to serve as marker substances for sleepiness due to their natural swings, those that show linear dynamics correlating with hours of wakefulness may serve as biomarkers. Nevertheless, identification of these remains tedious. However, several further considerations need to be addressed for a future optimized study. If not receding to baseline after recovery sleep, a metabolite cannot be related to sleepiness. High inter-individual differences come into play, too. Also, different sleep habits and therefore different sleep phenotypes are prevalent, resulting in time-shifted endogenous cycles that must be considered. Thus, a strict study protocol is needed for investigation of potential metabolic biomarkers for sleepiness to mitigate or eliminate confounding factors.

Flexible exchange rates in emerging markets: shock absorbers or drivers of endogenous cycles?

AbstractWhile flexible exchange rates are commonly regarded as shock absorbers, heterodox views suggest that they can play a pro-cyclical role in emerging markets. This article provides theoretical and empirical support for this view. Drawing on post-Keynesian and structuralist theories, we propose a simple model in which flexible exchange rates in conjunction with external shocks become endogenous drivers of boom-bust cycles, once financial effects from foreign-currency debt are accounted for. We present empirical evidence for regular cycles in nominal US-dollar exchange rates in several emerging markets that are closely aligned with cycles in economic activity. An econometric analysis suggests the presence of a cyclical interaction mechanism between exchange rates and output, in line with the theoretical model, in Chile, South Africa, and partly the Philippines. Further evidence indicates that such exchange rate cycles cannot exclusively be attributed to external factors, such as commodity prices, US monetary policy or the global financial cycle. We therefore argue that exchange rate cycles in emerging markets are driven by the interplay of external shocks and endogenous cycle mechanisms.

Estimating Nonlinear Business Cycle Mechanisms with Linear Vector Autoregressions: A Monte Carlo Study*

AbstractThe paper investigates how well linear vector autoregressions (VARs) identify endogenous cycle mechanisms and cycle frequencies when the underlying process is a nonlinear limit cycle. We conduct Monte Carlo simulations with five nonlinear models in which cycles are driven by the interaction of two state variables. We find that while linear VARs quantitatively underestimate the strength of the interaction mechanism, they successfully identify the qualitative presence of a cycle mechanism in most cases (55%–100%). Our results further suggest that linear VARs are surprisingly successful at estimating cycle frequencies of nonlinear processes.

DETECTING AND MEASURING FINANCIAL CYCLES IN HETEROGENEOUS AGENTS MODELS: AN EMPIRICAL ANALYSIS

This paper proposes a macroeconometric analysis to depict and measure possible financial cycles that emerge due to the dynamic interaction between heterogeneous market participants. We consider two-type heterogeneous speculative agents: Trend followers tend to follow the price trend while contrarians go against the wind. As agents’ beliefs are unobserved variables, we construct a state-space model where heuristics are considered as unobserved state components and from which the conditions for endogenous cycles can be mathematically derived and empirically tested. Further, we specifically measure the length of endogenous financial cycles. The model is estimated using the equity price index for the 1960–2020 period for the UK, France, Germany, Italy, Ireland, and the USA. We find empirical evidence of endogenous financial cycles for all countries, with the highest frequencies in the USA and the UK.

EEG signatures change during unilateral Yogi nasal breathing

Airflow through the left-and-right nostrils is said to be entrained by an endogenous nasal cycle paced by both poles of the hypothalamus. Yogic practices suggest, and scientific evidence demonstrates, that right-nostril breathing is involved with relatively higher sympathetic activity (arousal states), while left-nostril breathing is associated with a relatively more parasympathetic activity (stress alleviating state). The objective of this study was to further explore this laterality by controlling nasal airflow and observing patterns of cortical activity through encephalographic (EEG) recordings. Thirty subjects participated in this crossover study. The experimental session consisted of a resting phase (baseline), then a period of unilateral nostril breathing (UNB) using the dominant nasal airway, followed by UNB using the non-dominant nasal airway. A 64-channel EEG was recorded throughout the whole session. The effects of nostril-dominance, and nostril-lateralization were assessed using the power spectral density of the neural activity. The differences in power-spectra and source localization were calculated between EEG recorded during UNB and baseline for delta, theta, alpha, beta and gamma bands. Cluster-based permutation tests showed that compared to baseline, EEG spectral power was significantly (1) decreased in all frequency bands for non-dominant nostril UNB, (2) decreased in alpha, beta and gamma bands for dominant nostril UNB, (3) decreased in all bands for left nostril UNB, and (4) decreased in all bands except delta for right nostril UNB. The beta band showed the most widely distributed changes across the scalp. our source localisation results show that breathing with the dominant nostril breathing increases EEG power in the left inferior frontal (alpha band) and left parietal lobule (beta band), whereas non-dominant nostril breathing is related to more diffuse and bilateral effects in posterior areas of the brain.These preliminary findings may stimulate further research in the area, with potential applications to tailored treatment of brain disorders associated with disruption of sympathetic and parasympathetic activity.

Endogenous Cycles in a Competitive Search Credit Market

Endogenous Cycles in a Competitive Search Credit Market

The Macrodynamics of an Endogenous Business Cycle Model of Marxist Inspiration

The Macrodynamics of an Endogenous Business Cycle Model of Marxist Inspiration

Influence of weather and endogenous cycles on spatiotemporal yield variation in oil palm

Oil palm is the major source of vegetable oil in the world and Indonesia is the main palm oil producing country. There is limited knowledge on the factors accounting for spatial and temporal variation in fresh fruit bunches (FFB) yield. Here we investigated relationships between weather and endogenous factors with FFB yield and its components (bunch number and individual bunch weight) using data collected from well-managed plantations in Indonesia. The database included many sites and years (total of 136 block-years observations), portraying a wide range of FFB yield and environmental conditions. We used average annual values to detect spatial variations in yield associated with weather, and monthly values to detect temporal yield variations in yield associated with weather and endogenous cycles. We found that water stress was the key factor accounting for the spatial and/or temporal variation in FFB yield. Our analysis also highlights the importance of vapor pressure deficit (VPD) as a stress factor in oil palm, with this study being the first to demonstrate the negative relationship between yield and VPD and yield and water-use efficiency at the block level. Meteorological anomalies during the bunch failure, anthesis, and sex differentiation periods had the largest impact on yield. Besides climate factors, we confirmed the existence of endogenous yield cycles, with high-yield cycles typically followed by low-yield cycles and vice versa. Our findings extend current knowledge about sources of variation in oil palm yield, providing useful information to describe oil palm production environments and improve oil palm modeling and yield forecasting.