Income effects and indeterminacy in a calibrated one-sector growth model
This note analyzes how the indeterminacy of competitive equilibrium in one-sector growth models depends on the magnitude of the households' income effect on the demand for leisure. Since I am interested in quantitatively characterizing regions of indeterminacy, I use the Jaimovich and Rebelo [N. Jaimovich, S. Rebelo, Can news about the future drive the business cycle? Mimeo, Northwestern University, 2007] preferences that span a wide range of income effect values. I find that indeterminacy can occur for levels of aggregate-returns-to-scale that are well within recent empirical estimates. For these regions of indeterminacy, the model, when driven solely by sunspot shocks, generates second-moment properties that are consistent with the U.S. data at the business cycle frequency.
Year of publication: |
2008
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Authors: | Jaimovich, Nir |
Published in: |
Journal of Economic Theory. - Elsevier, ISSN 0022-0531. - Vol. 143.2008, 1, p. 610-623
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Publisher: |
Elsevier |
Keywords: | Indeterminate equilibria Utility function Sunspot shocks Business cycles |
Saved in:
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