Indeterminancy and Sunspots with Constant Returns

Jess Benhabib and Kazuo Nishimura

Working Papers from C.V. Starr Center for Applied Economics, New York University

Abstract: We show that indeterminacy can easily arise in multi-sector models that have constant variable returns to scale and very small market imperfections. This is in sharp contrast to models that require increasing returns to generate indeterminacy, and which have been criticized on the basis of recent empirical estimates indicating that returns to scale are roughly constant, and that market imperfections are small. We also show that we can calibrate our constant returns model with sunspots, using standard parametrizations to produce a close match to the moments of aggregate consumption, investment, output and employment in U.S. data.

Keywords: Indeterminacy; multiple equilibria; sunspots (search for similar items in EconPapers)
JEL-codes: E00 E3 O40 (search for similar items in EconPapers)
Pages: 48 pages
Date: 1996
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Citations: View citations in EconPapers (3)

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Journal Article: Indeterminacy and Sunspots with Constant Returns (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:cvs:starer:96-44

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