Indeterminacy and Sunspot Fluctuations in Two-Sector RBC models: Theory and Calibration

Frédéric Dufourt, Kazuo Nishimura and Alain Venditti

No 1315, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: We analyze sunspot-driven fluctuations in the standard 2-sector RBC model with moderate increasing returns to scale. We provide a detailed theoretical analysis enabling us to derive relevant bifurcation loci and to characterize the steady-state local stability properties as a function of various structural parameters. With GHH preferences, we show that local indeterminacy occurs through flip and Hopf bifurcations for a large set of values of the elasticity of intertemporal substitution in consumption if the labor supply is sufficiently inelastic. With additively-separable preferences, we prove that local indeterminacy occurs through flip and Hopf bifurcations for any value of the elasticity of the labor supply, and can even be compatible with an arbitrarily low elasticity of intertemporal substitution in consumption. Finally, we provide a detailed quantitative analysis of the model. Computing, on a quarterly basis, a new set of empirical moments related to two broadly defined consumption and investment sectors, we are able to identify, among the set of admissible calibrations consistent with sunspot equilibria, the ones that provide the best fit of the data. The model properly calibrated solves several empirical puzzles traditionally associated with 2-sector RBC models.

Keywords: Indeterminacy; sunspots; two-sector model; sector-specific externalities; real business cycles. (search for similar items in EconPapers)
JEL-codes: C62 E32 O41 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2013-03, Revised 2009-11
New Economics Papers: this item is included in nep-dge and nep-mac
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Related works:
Working Paper: Indeterminacy and sunspot fluctuations in two-sector RBC models: theory and calibration (2013)
Working Paper: Indeterminacy and Sunspot Fluctuations in Two-Sector RBC models: Theory and Calibration (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:1315

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