INDETERMINACY AND INVESTMENT ADJUSTMENT COSTS: AN ANALYTIC RESULT

Jinill Kim

Macroeconomic Dynamics, 2003, vol. 7, issue 3, 394-406

Abstract: It has been widely known that neoclassical growth models with sufficient increasing returns in production may feature indeterminacy. This note analytically shows that investment adjustment costs increase the required degree of increasing returns for indeterminacy to arise. Under empirically plausible levels of investment adjustment costs, we need an implausibly large degree of increasing returns to generate indeterminacy.

Date: 2003
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