Indeterminacy with no-income-effect preferences and sector-specific externalities

Jang-Ting Guo and Sharon Harrison

Journal of Economic Theory, 2010, vol. 145, issue 1, 287-300

Abstract: We examine a two-sector real business cycle (RBC) model with sector-specific externalities in which household utility exhibits no income effect on the demand for leisure. Unlike in the one-sector counterpart, indeterminacy can result with sufficiently high returns-to-scale in the investment sector. Moreover, the smaller the labor supply elasticity, the lower the level of externalities needed for indeterminacy. This finding is the opposite of that in all existing RBC-based indeterminacy studies. Finally, in contrast to previous sunspot-driven two-sector RBC models, our economy is able to match the stylized facts that sectoral labor inputs are positively correlated and consumption is procyclical.

Keywords: Indeterminacy; Income; effect; Sector-specific; externalities (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022-0531(09)00105-7
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Indeterminacy with No-Income-Effect Preferences and Sector-Specifc Externalities (2008)
Working Paper: Indeterminacy with No-Income-Effect Preferences and Sector-Specific Externalities (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:145:y:2010:i:1:p:287-300

Access Statistics for this article

Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell

More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().