On the Transition from Local Regular to Global Iregular Fluctuations

We present a general framework for understanding the transition from local regular to global irregular (chaotic) behavior of nonlinear dynamical models in discrete time. The fundamental mechanism is the unfolding of quadratic tangencies between the stable and the unstable manifolds of periodic saddle points. To illustrate the relevance of the presented methods for analyzing globally a class of dynamic economic models, we apply them to the finite horizon model of Woodford.