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Local Determinacy with Non-separable Utility

Patrick Pintus

Working Papers from HAL

Abstract: This paper introduces general formulations for both technology (with input substitution) and non-separable utility (compatible with balanced growth and stationary worked hours) into a benchmark RBC model. It is shown that intertemporal substitution and input substitutability lead to local determinacy and rule out stationary sunspot equilibria when labor demand is downward-sloping, in contrast with recent results obtained under the assumption of separable utility. The main intuition behind this result is shown to work as follows: in contrast with separable preferences, increasing the elasticity of intertemporal substitution in consumption necessarily implies decreasing the elasticity of constant-consumption labor supply, when utility is non-separable and concave, which affects unfavorably the occurrence of local indeterminacy.

Keywords: real business cycles; intertemporal substitution; capital-labor substitution; externalities; indeterminacy; sunspots.; sunspots (search for similar items in EconPapers)
Date: 2009-08-10
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00409585
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Journal Article: Local determinacy with non-separable utility (2007) Downloads
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