Endogenous Instability in Credit-Constrained Emerging Economies with Leontief Technology

摘要

This work provides a framework to analyze the role of financial developmentas a source of endogenous instability in emerging economiessubject to moral hazard problems. We propose and study a dynamicmodel describing a small open economy with a tradeable good producedby internationally mobile capital and a country specific input, using Leontieftechnology. We demonstrate that emerging markets could be endogenouslyunstable since large capital inflows increase risk and exacerbateasymmetric information problems, according to empirical evidences. Usingbifurcation and stability analysis, we describe the properties of thesystem attractors, we assess the plausibility for complex dynamics and, wefind out that border collision bifurcations can emerge due to the fact thatthe state space is piecewise smooth. As a consequence, when a fixed orperiodic point loses its stability, the final dynamics may become suddenlychaotic. This fact may explain how financial crises occurred in emergingeconomies.