Home Production and Indeterminacy with Variable Income Effects

Yan Zhang ()
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Yan Zhang: Wenlan School of Business, Zhongnan University of Economics and Law

Annals of Economics and Finance, 2020, vol. 21, issue 1, 153-172

Abstract: In this paper, we utilize a real business cycle model with home production, productive increasing returns and the Jaimovich-Rebelo’s preferences that allow for varying degrees of income effect, to show that when the values of income effect are intermediary and the level of increasing returns is reasonably high, the economy can be subject to local indeterminacy, provided that the other model parameters take reasonable values. In particular, we show that in the indeterminacy region, the minimum level of productive externality that induces instability increases as the income effect increases.

Keywords: Aggregate externalities; Income effects; Home production; Local indeterminacy (search for similar items in EconPapers)
JEL-codes: E30 E32 (search for similar items in EconPapers)
Date: 2020
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