On the minimum degree of returns to scale in sunspot models of the business cycle

Hintermaier, Thomas

doi:10.1016/s0022-0531(03)00034-6

Cited by 45 publications

(41 citation statements)

References 4 publications

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“…In our calibration exercise, indeterminacy occurs with constant returns technology if the consumption of the unemployed is less than 2 Our work is closely related to Bennett and Farmer (2000), who have emphasized the potential importance of a downward sloping Frisch labor supply curve to generate indeterminacy. As shown by Hintermaier (2003) and Nakajima (2001), however, as long as utility is concave between consumption and leisure, the Frisch labor supply curve cannot slope down. Here, the Frisch NSC is downward sloping in spite of the concavity of the utility function.…”

Section: Introductionmentioning

confidence: 99%

Unemployment and Indeterminacy

Nakajima

2003

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractUsing an efficiency-wage model, we examine the relationship between indeterminacy and unemployment insurance. It is shown that the less unemployment insurance is, the more likely equilibrium is to be indeterminate. Equilibrium can be indeterminate even without externalities or increasing returns, which makes a sharp contrast to the recent literature on indeterminacy. Our result is based on the fact that the no-shirking condition with marginal utility of wealth kept constant is downward sloping when income insurance is not perfect.

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Section: Introductionmentioning

confidence: 99%

Unemployment and Indeterminacy

Nakajima

2003

SSRN Journal

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“…Using (22) and (23) and considering that z * = µm * and v * = c * /m * , we derive at the steady state ψ(m * ) = µ−β βv * (36) 15 We have indeed under Assumption 5: dkt+1/dkt = 1 − δ + dyt/dkt = 1 − δ + 1/b ≈ 0. 16 See Hintermaier [19,20] and Pintus [25].…”

Section: Kpr Preferencesmentioning

confidence: 99%

Multiple equilibria in two-sector monetary economies: An interplay between preferences and the timing for money

Bosi¹,

Nishimura²,

Venditti³

2010

Journal of Mathematical Economics

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Abstract:In this paper, we study the occurrence of local indeterminacy in two-sector monetary economies. In order to capture the credit market imperfections and the liquidity services of money, we consider a general MIUF model with two alternative timings in monetary payments: the Cash-In-Advance timing, in which the cash available to buy goods is money in the consumers' hands after they leave the bond market but before they enter the goods market, and the Cash-After-the-Market timing, in which agents hold money for transactions after leaving the goods market. We consider three standard specifications of preferences: the additively separable formulation, the Greenwood-Hercovitz-Huffman (GHH) [18] formulation and the King-Plosser-Rebelo (KPR) [21] formulation. First, we show that for all the three types of preferences, local indeterminacy easily arises under the CIA timing with a low enough interest rate elasticity of money demand. Second, we show that with the CAM timing, determinacy always holds under separable preferences, but local indeterminacy can arise in the case of GHH and KPR preferences. We thus prove that compared to aggregate models, two-sector models provide new rooms for local indeterminacy when non-separable standard preferences are considered.

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“…Bennett and Farmer [5] have argued that non-separable utility is a key element to achieve this objective. However, Hintermaier [6] has recently shown that assuming CobbDouglas technology and a downward-sloping labor demand rules out local indeterminacy, in contrast with the examples by Bennett and Farmer [5] which turn out to violate concavity. On the other hand, Pintus [9] has stressed that local indeterminacy may occur with small externalities (and downward-sloping labor demand): this requires both risk aversion to be small enough (very close to zero, indeed, for reasonable parameter values) and input substitutability to be large enough (greater than two).…”

Section: Introductionmentioning

confidence: 96%

“…However, he assumes that utility is separable in consumption and leisure. Taking all recent results together, one wonders whether or not departing from Cobb-Douglas technology (which is key in Pintus [9]) may overturn the result by Hintermaier [6] and reconcile local indeterminacy with small externalities, in the spirit of the examples with low risk aversion studied in Bennett and Farmer [5].…”

Section: Introductionmentioning

confidence: 99%

Local determinacy with non-separable utility

Pintus

2007

Journal of Economic Dynamics and Control

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This paper introduces general formulations for both technology (with input substitution) and non-separable utility (compatible with balanced growth and stationary worked hours) into a benchmark RBC model. It is shown that intertemporal substitution and input substitutability lead to local determinacy and rule out stationary sunspot equilibria when labor demand is downward-sloping, in contrast with recent results obtained under the assumption of separable utility. The main intuition behind this result is shown to work as follows: in contrast with separable preferences, increasing the elasticity of intertemporal substitution in consumption necessarily implies decreasing the elasticity of constant-consumption labor supply, when utility is non-separable and concave, which affects unfavorably the occurrence of local indeterminacy.

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On the minimum degree of returns to scale in sunspot models of the business cycle

Cited by 45 publications

References 4 publications

Unemployment and Indeterminacy

Unemployment and Indeterminacy

Multiple equilibria in two-sector monetary economies: An interplay between preferences and the timing for money

Local determinacy with non-separable utility

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