We present a general framework for understanding the transition from
local regular to global irregular (chaotic) behaviour of non-linear
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 analysing globally a class of dynamic economic
models, we apply them to the infinite horizon model of Woodford (1988),
(J. Economic Theory, 40, 128-137), amended by Grandmont et al. (1998),
(J. Economic Theory, 80) to account for capital-labour substitution, so
as to explain the appearance of irregular fluctuations, through homoclinic
bifurcations, when parameter values are `far' away from local bifurcation
points.