Exact parametric restrictions for 3-cycles in the RSS model: a complete and comprehensive characterization (Q2201698)

The article is devoted to an important topic: limitation of the discount factor for a period of three cycles in models for dynamic optimization -- exact and upper limits (present permanently in the studies of \textit{T. Mitra} [J. Econ. Theory 69, No. 2, 281--305 (1996; Zbl 0854.90028)] and \textit{K. Nishimura} and \textit{M. Yano} [J. Econ. Theory 69, No. 2, 306--333 (1996; Zbl 0854.90027)]. Theorems giving necessary and sufficient conditions for 3-period cycles in the two-sector Robinson-Solow-Srinivasan (RSS) model, taking as its point of departure an independently- (and simultaneously-) discovered exact discount-factor restriction for a general class of growth models by Mitra-Nishimura-Yano type are proved. More precisely, the main result is contained in the following Theorem 1. Let \(\hat \rho=\frac{\sqrt{3}-1}{2}\), (i) If \(\rho<\hat \rho\), then there exist \(a\in (0,1)\) and \(d\in (0,1)\) such that the RSS model with parameters \((a,d,\rho)\) has an optimal policy function (OPF) which generates a 3-period cycle. (ii) If the RSS model with parameters \((a,d,\rho)\) has an OPF which generates a 3-period cycle, then \(\rho<\hat \rho\). The article discusses other important issues as well as guidelines for future research on this topic.