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Indeterminacy and expectation-driven uctuations with non-separable preferences

Kazuo Nishimura () and Alain Venditti ()

No 702, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We consider a continuous-time two-sector infinite-horizon model with sector specific externalities, endogenous labor and a concave homogeneous non-separable utility function. We show that local indeterminacy arises with a low elasticity of intertempo- ral substitution in consumption provided the wage elasticity of the labor supply and the elasticity of substitution between consumption and leisure are low enough. Such a result cannot hold with additively-separable preferences for which local indeterminacy requires a large enough elasticity of intertemporal substitution in consumption.

Keywords: Sector-specific externalities; endogenous labor; non-separable concave ho- mogeneous utility functions; intertemporal substitution in consumption; local indetermi- nacy. (search for similar items in EconPapers)
JEL-codes: C62 E32 O41 (search for similar items in EconPapers)
Pages: 27pages
Date: 2010-03
New Economics Papers: this item is included in nep-dge and nep-upt
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