Indeterminacy and Investment Adjustment Costs in an Endogenously Growing Small Open Economy

Jang-Ting Guo, Chi-Ting Chin () and Ching-chong Lai

No 200913, Working Papers from University of California at Riverside, Department of Economics

Abstract: This paper analytically examines the interrelations between macroeconomic (in)stability and investment adjustment costs in a one-sector endogenously growing small-open-economy representative agent model. We show that under costly capital accumulation, the economy exhibits indeterminacy and sunspots if and only if the equilibrium wage-hours locus slopes upwards and is steeper than the householdiÌ s labor supply curve. By contrast, the economy without adjustment costs for capital investment always displays saddle-path stability and equilibrium uniqueness, regardless of the degree of increasing returns in aggregate production.Â

Pages: 13 pages
Date: 2009-11, Revised 2009-11
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https://economics.ucr.edu/repec/ucr/wpaper/09-13.pdf First version, 2009 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:200913

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