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Regime-Switching Sunspot Equilibria in a One-Sector Growth Model with Aggregate Decreasing Returns and Small Externalities

Takashi Kamihigashi

No DP2015-42, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: This paper shows that regime-switching sunspot equilibria easily arise in a one-sector growth model with aggregate decreasing returns and arbitrarily small externalities. We construct a regime-switching sunspot equilibrium in the case where the utility function of consump-tion is linear. We also construct a stochastic optimal growth model whose optimal process is a regime-switching sunspot equilibrium of the original economy in the case where there is no capital externality. We illustrate our results with numerical examples.

New Economics Papers: this item is included in nep-gro and nep-upt
Date: 2015-12
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https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2015-42.pdf First version, 2015 (application/pdf)

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Working Paper: Regime-Switching Sunspot Equilibria in a One-Sector Growth Model with Aggregate Decreasing Returns and Small Externalities (2016) Downloads
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