Irina Sushko, National Academy of Sciences of Ukraine
Michael Wegener, University of Bamberg, Department of Economics
Frank Westerhoff, University of Bamberg, Department of Economics
Georg Zaklan, University of Bamberg, Department of Economics

Abstract: Metzler's inventory model may produce dampened fluctuations in economic activity, thus contributing to our understanding of business cycle dynamics. For some parameter combinations, however, the model generates oscillations with increasing amplitude, implying that the inventory stock of firms eventually turns negative. Taking this observation into account, we reformulate Metzler's model by simply putting a floor to the inventory level. Within the new piecewise linear model, endogenous business cycle dynamics may now be triggered via a center bifurcation, i.e. for certain parameter combinations production changes are (quasi-)periodic.

Keywords: inventory adjustments, business cycles, piecewise linear model, center bifurcation