Indeterminacy in aggregate models with small externalities: an interplay between preferences and technology

Kazuo Nishimura (1) , Carine Nourry (2) , Alain Venditti (2)

1 Kyoto University
2 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille

In this paper we consider a Ramsey-type aggregate model with general preferences and technology, endogenous labor and factor-specific
productive external effects arising from average capital and labor. First, we show that indeterminacy cannot arise when there are only
capital externalities but that it does when there are only labor external effects. Second, we prove that only the additively-separable and linear homogeneous specifications for the utility function allow to get local indeterminacy under small externalities and plausible restrictions on the main parameters. Third, we show that the existence of sunspot fluctuations is intimately related to the occurrence of periodic cycles through a Hopf bifurcation.

Mots clés: Indeterminacy; endogenous cycles; infinite-horizon model; <br />endogenous labor supply; capital and labor externalities

Domaines: Economies et finances

Kazuo Nishimura, Carine Nourry, Alain Venditti. Indeterminacy in aggregate models with small externalities: an interplay between preferences and technology. 2008. ⟨halshs-00281428⟩