Consumer sentiment and business cycles: a Neimark–Sacker bifurcation scenario

Abstract

We seek to demonstrate that consumer sentiment may create fluctuations in economic activity. Our nonlinear discrete-time model possesses, for instance, a Neimark–Sacker bifurcation, after which a stable steady state is replaced by (quasi-)periodic motion. Countercyclical interventions to stabilize the economy may even produce complex (chaotic) business cycles.

Notes

¹ For instance, if a = 0.1, b = 0.5, c = 0.49 and d = 0.95, we observe a stable period-two cycle. In this case, the critical value for a is a = 0.1613.