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Endogenous Business Cycle Dynamics within Metzlers Inventory Model: Adding an Inventory Floor
Irina Sushko1, Michael Wegener, Frank Westerhoff
1University of Bamberg, Department of Economics, Feldkirchenstrasse 21, Bamberg, D-96045, Germany.
Nonlinear Dynamics, Psychology, and Life Sciences
|March 31, 2009
Summary
Metzlers inventory model is enhanced by introducing a floor for inventory levels. This modification allows for stable, periodic business cycle dynamics, improving economic models.
Area of Science:
- Economics
- Mathematical Economics
- Business Cycle Analysis
Background:
- The original Metzlers inventory model can generate unstable economic fluctuations.
- Unrealistic negative inventory levels arise in some model parameters.
- Understanding business cycle dynamics is crucial for economic stability.
Purpose of the Study:
- To reformulate Metzlers inventory model to address its limitations.
- To investigate the impact of a minimum inventory level on economic cycles.
- To explore new mechanisms for endogenous business cycle generation.
Main Methods:
- Modification of Metzlers inventory model by introducing a floor constraint.
- Analysis of the reformulated piecewise linear model.
- Application of bifurcation theory to identify dynamic regimes.
Main Results:
- The modified model prevents unrealistic negative inventory levels.
- A center bifurcation is identified as a trigger for endogenous dynamics.
- The model now generates stable, quasi-periodic production fluctuations for specific parameters.
Conclusions:
- The floor constraint stabilizes the Metzlers inventory model.
- The reformulated model offers a more realistic representation of business cycles.
- This approach enhances the understanding of endogenous economic fluctuations.
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