Discontinuous Initial Value Problems for Funtional Differential-Algebraic Equations of Mixed Type

We study the well-posedness of initial value problems for nonlinear functional differential-algebraic equations of mixed type. We are interested in solutions to such problems that admit a single jump discontinuity at time zero. We focus specially on the question whether unstable equilibria can be stabilized by appropriately choosing the size of the jump discontinuity. We illustrate our techniques by analytically studying an economic model for the interplay between inflation and interest rates. In particular, we investigate under which circumstances the central bank can prevent runaway inflation by appropriately hiking the interest rate.