INDETERMINACY IN A ONE-SECTOR MODEL REVISITED: DEMAND VERSUS SUPPLY-SIDE INDETERMINACY

Nicholas Sim

The Singapore Economic Review (SER), 2009, vol. 54, issue 02, 183-196

Abstract: This paper explains how indeterminacy in a one-sector model may arise due to externalities in the disutility of labor supply, which is termed asdemand-sideindeterminacy. This contrastssupply-sideindeterminacy that is driven by externalities in the production function as exemplified by Benhabib and Farmer (Journal of Economic Theory, 1994). For the one-sector models considered, I find that indeterminacy arises more easily from the demand than from the supply side. In addition, demand and supply-side indeterminacy generate different cyclical patterns of wages, a feature that is useful for identifying episodes of self-fulfilling prophecies within the two types of indeterminacy.

Keywords: Indeterminacy; one-sector; self-fulfilling prophecies; business cycle (search for similar items in EconPapers)
Date: 2009
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DOI: 10.1142/S0217590809003306

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