Cycles and Crises in a Model of Debt-financed Investment-led Growth

Abstract

The paper demonstrates possibilities of both convergence to the steady state and emergence of stable growth cycles around it in a simple macrodynamic model of debt-financed investment-led growth. The growth cycles are robust and are generated endogenously, either due to the existence of a supercritical Andronov-Hopf bifurcation, or due to the global stability condition through an application of the Poincaré-Bendixson theorem. The emergence of multiple limit cycles is also observed under certain conditions. The possibility of a deterioration of financial variables during a boom, with the resulting financial crisis providing an endogenous ceiling to a business cycle is examined in this context