Endogenous business cycle dynamics within the inventory model of Metzler: adding an inventory floor

The inventory model of Metzler may produce dampened fluctuations in economic activity and thus contributes 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 the 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