Indeterminacy, business cycles, and modest increasing returns to scale

Mark Weder

No 1997,60, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: In this paper a dynamic model of monopolistic competition with entry and exit has been presented and examined. It is shown that the model displays indeterminacy at modest degrees of increasing returns in cases where the market power in the consumption goods market and in the investment goods market differs. Furthermore, the model is quite successful in replicating major U.S. business cycle facts. In contrast to existing Real Business Cycle models, the animal spirits model contains a strong endogenous propagation mechanism.

Keywords: Sunspots; technology shocks; economic fluctuations (search for similar items in EconPapers)
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb373:199760

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