Indeterminacy and business-cycle fluctuations in a two-sector monetary economy with externalities

Stefano Bosi, Kazuo Nishimura and Alain Venditti

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Abstract: We consider a two-sector economy with money-in-the-utility-function and sector-specific externalities. We provide conditions on technologies leading to the existence of local indeterminacy for any value of the interest rate elasticity of money demand, provided the elasticity of intertemporal substitution in consumption is large enough. Moreover, we show that the occurrence of multiple equilibria is intimately linked with the existence of a flip bifurcation and period-two cycles.

Keywords: Money-in-the-utility-function; two-sector economy; sector-specific externalities; indeterminacy; period-two cycles; sunspot equilibria (search for similar items in EconPapers)
Date: 2009-11-15
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