Belief and Deterministic Randomness in a One-Sector Discrete Time Optimal Growth Model: The Case of Hong-Kong

Belief and Deterministic Randomness in a One-Sector Discrete Time Optimal Growth Model: The Case of Hong-Kong

It is now well established that fears or arbitrary beliefs may become self-fulfilling economic prophecies. Given the oscillatory behavior displayed by the Hong-Kong economy since 1985, a constraining exogenous belief is modelled into a one-sector discrete time optimal growth model, which purports to mimic capital accumulation there. It shows that revisions of agents` expectations, stemming from that belief, suffice to change the nature of the equilibrium point from fixed points to limit cycles of every integer period. In fact, as the real or imaginary but credible constraint is being approached, the economic system begins to display totally aperiodic trajectories which are indistinguishable from the realization of a stochastic process.