Indeterminacy and expectation-driven fluctuations with non-separable preferences
We consider a continuous-time two-sector infinite-horizon model with sector-specific externalities, endogenous labor and a concave homogeneous non-separable utility function. We show that local indeterminacy arises with a low elasticity of intertemporal substitution in consumption provided the wage elasticity of the labor supply and the elasticity of substitution between consumption and leisure are low enough. Such a result cannot hold with additively separable preferences for which local indeterminacy requires a large enough elasticity of intertemporal substitution in consumption.
Year of publication: |
2010
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Authors: | Nishimura, Kazuo ; Venditti, Alain |
Published in: |
Mathematical Social Sciences. - Elsevier, ISSN 0165-4896. - Vol. 60.2010, 1, p. 46-56
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Publisher: |
Elsevier |
Keywords: | Sector-specific externalities Endogenous labor Non-separable concave homogeneous utility functions Intertemporal substitution in consumption Local indeterminacy |
Saved in:
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