Determinacy Through Intertemporal Capital Adjustment Costs

Berthold Herrendorf and Akos Valentinyi ()

No 3581, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: It is well known that if there are mild sector-specific externalities, then the steady state of the standard two-sector real business cycle model can become locally indeterminate and endogenous business cycles can arise. We show that this result is not robust to the introduction of standard intertemporal capital adjustment costs, which may accrue when total capital is adjusted or when each sector?s capital is adjusted. We find for both forms of adjustment costs that the steady state is determinate for all empirically plausible parameter values. We also find that determinacy occurs for a much larger range of parameter values when adjusting each sector?s capital is costly.

Keywords: Capital adjustment costs; Determinacy; Local indeterminacy; Local stability; Sector-specific externality (search for similar items in EconPapers)
JEL-codes: E00 E30 (search for similar items in EconPapers)
Date: 2002-10
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP3581 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Determinacy Through Intertemporal Capital Adjustment Costs (2002)
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:cpr:ceprdp:3581

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP3581

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().