New study reveals how economic indeterminacy fuels business-cycle chaos.
The article explores how a two-sector economy with money and externalities can have multiple equilibria due to specific conditions in technologies. The researchers found that when the elasticity of intertemporal substitution in consumption is high enough, there can be local indeterminacy regardless of the interest rate elasticity of money demand. This multiple equilibrium situation is connected to a flip bifurcation and period-two cycles in the economy.