Dynamic effects of consumption externalities

Riham Barbar () and Mohanad Ismael
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Riham Barbar: San Francisco State University
Mohanad Ismael: Birzeit University

Decisions in Economics and Finance, 2020, vol. 43, issue 2, No 17, 725-750

Abstract: Abstract This paper examines the dynamic effects of consumption externalities in Bosi and Seegmuller (J Math Econ 46:475–492, 2010). We show that only the patient agent holds the entire capital stock at the steady state, while the impatient agent works to finance his consumption. Our main result states that consumption externalities represent the main mechanism that explains the emergence of endogenous fluctuations due to self-fulfilling expectations. Finally, consumption externalities promote the appearance of deterministic cycles of period two.

Keywords: Consumption externalities; Bifurcations; Heterogeneous agents; Borrowing constraint; Local indeterminacy; Self-fulfilling expectations; Endogenous fluctuations (search for similar items in EconPapers)
JEL-codes: C62 D30 E21 E32 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10203-020-00296-6

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