Equilibrium Indeterminacy, Endogenous Entry and Exit, and Increasing Returns to Specialization

Shu-Hua Chen () and Jang-Ting Guo
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Shu-Hua Chen: National Taipei University

No 202006, Working Papers from University of California at Riverside, Department of Economics

Abstract: This paper systematically examines the interrelations between equilibrium indeterminacy, endogenous entry and exit of intermediate-input firms, and increasing returns to specialization within two versions of a parsimonious one-sector monopolistically competitive real business cycle model. The technology for producing an intermediate good is postulated to display internal increasing returns-to-scale in our benchmark framework, whereas positive productive externalities are considered in the alternative setting. We analytically show that either formulation will exhibit belief-driven cyclical fluctuations if and only if the equilibrium wage-hours locus is positively sloped and steeper than the household's labor supply curve. We also find that ceteris paribus our alternative macroeconomy is more susceptible to indeterminacy and sunspots than the baseline counterpart.

Keywords: Equilibrium Indeterminacy; Endogenous Entry and Exit; Increasing Returns to Specialization. (search for similar items in EconPapers)
JEL-codes: E13 E32 O41 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-dge and nep-mac
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https://economics.ucr.edu/repec/ucr/wpaper/202006.pdf First version, 2020 (application/pdf)

Related works:
Journal Article: EQUILIBRIUM INDETERMINACY, ENDOGENOUS ENTRY AND EXIT, AND INCREASING RETURNS TO SPECIALIZATION (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:202006

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