Sunspot Fluctuations in Two-sector Economies with Heterogeneous Agents

Stefano Bosi (), Francesco Magris and Alain Venditti
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Stefano Bosi: EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne

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Abstract: We study a two-sector model with heterogeneous agents and borrowing constraint on labor income. We show that the relative capital intensity difference across sectors is crucial for the conditions required to get indeterminacy and endogenous fluctuations. The main result shows that when the consumption good is sufficiently capital intensive, local indeterminacy arises while the elasticities of capital-labor substitution in both sectors are slightly greater than unity and the elasticity of the offer curve is low enough. Locally indeterminate equilibria are thus compatible with a low elasticity of intertemporal substitution in consumption and a low elasticity of the labor supply. As recently shown in empirical analysis, these conditions appear to be in accordance with macroeconomic evidences. © 2006 Springer-Verlag.

Keywords: Indeterminacy; Heterogeneous agents; Two-sector model; Borrowing constraint (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (4)

Published in Economic Theory, 2007, 33, pp.311--331. ⟨10.1007/s00199-006-0116-4⟩

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Related works:
Journal Article: Sunspot Fluctuations in Two-sector Economies with Heterogeneous Agents (2007)
Working Paper: Sunspot Fluctuations in Two-Sector Economies with Heterogeneous Agents (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02877990

DOI: 10.1007/s00199-006-0116-4

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