Indeterminacy and expectation-driven fluctuations with non-separable preferences

Kazuo Nishimura () and Alain Venditti ()

Mathematical Social Sciences, 2010, vol. 60, issue 1, pages 46-56

Abstract: 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.

Keywords: Sector-specific; externalities; Endogenous; labor; Non-separable; concave; homogeneous; utility; functions; Intertemporal; substitution; in; consumption; Local; indeterminacy (search for similar items in EconPapers)
Date: 2010
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Working Paper: Indeterminacy and expectation-driven uctuations with non-separable preferences (2010)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:matsoc:v:60:y:2010:i:1:p:46-56

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