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

Takashi Kamihigashi

No DP2016-21, 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 under the assumption that the utility function of consumption is linear. We also construct a stochastic optimal growth model whose optimal process turns out to be a regime-switching sunspot equilibrium of the original economy under the assumption that there is no capital externality. We illustrate our results with numerical examples.

Pages: 27 pages
Date: 2016-05
New Economics Papers: this item is included in nep-dge, nep-gro and nep-upt
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https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2016-21.pdf First version, 2016 (application/pdf)

Related works:
Working Paper: Regime-Switching Sunspot Equilibria in a One-Sector Growth Model with Aggregate Decreasing Returns and Small Externalities (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:kob:dpaper:dp2016-21

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