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Heterogeneous expectations and debt in a growth model for a small open economy

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  • Michael Wegener

Abstract

We extend an aggregative growth model for a small open economy by developing a framework in which boundedly rational agents raise credit in proportion to their expected income. Moreover, these agents are heterogeneous in the sense that they switch between an extrapolative and a regressive forecasting rule with respect to perceived market circumstances. Using a mixture of analytical and numerical tools, we attempt to describe the characteristics of our model’s dynamical system. Our results then suggest that self-fulfilling short-run expectations do not only have important consequences for fluctuations in economic activity but are also a source of simple endogenous dynamics. Copyright Springer-Verlag Italia 2014

Suggested Citation

  • Michael Wegener, 2014. "Heterogeneous expectations and debt in a growth model for a small open economy," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(1), pages 125-136, April.
    • Handle: RePEc:spr:decfin:v:37:y:2014:i:1:p:125-136
    DOI: 10.1007/s10203-013-0142-1
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    More about this item

    Keywords

    Endogenous business cycles; Heterogeneous expectations ; Nonlinear dynamics; Growth models; E32; C62;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium

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