On indeterminacy in one-sector models of the business cycle with factor-generated externalities

18Citations
Citations of this article
10Readers
Mendeley users who have this article in their library.
Get full text

Abstract

By relaxing the restrictions commonly imposed on the magnitude of capital externalities in one-sector models with Cobb-Douglas technology, we find that indeterminacy can arise in the following two cases: (i) the felicity function is separable in consumption and leisure and there are negative capital externalities; (ii) the felicity function is non-separable and the social elasticity of production with respect to capital is greater than one. In both cases indeterminacy happens when the aggregate labor-demand curve is downward-sloping. In addition, with Cobb-Douglas technology we show that the presence of income effects on the demand for leisure is a necessary condition for indeterminacy to occur, and that therefore for certain felicity functions characterized by the presence of no income effects indeterminacy can never occur regardless of the signs and magnitudes of capital and labor externalities. © 2007 Elsevier Inc. All rights reserved.

Cite

CITATION STYLE

APA

Meng, Q., & Yip, C. K. (2008). On indeterminacy in one-sector models of the business cycle with factor-generated externalities. Journal of Macroeconomics, 30(1), 97–110. https://doi.org/10.1016/j.jmacro.2007.02.003

Register to see more suggestions

Mendeley helps you to discover research relevant for your work.

Already have an account?

Save time finding and organizing research with Mendeley

Sign up for free