Indeterminacy and cycles in two-sector discrete-time model

Jess Benhabib, Kazuo Nishimura, Alain Venditti

    Research output: Contribution to journalArticlepeer-review

    Abstract

    We consider a discrete-time two-sector Cobb-Douglas economy with positive sector specific external effects. We show that indeterminacy of steady states and cycles can easily arise with constant or decreasing social returns to scale, and very small market imperfections. This is in sharp contrast with most of the contributions in the literature in which increasing social returns are required to generate indeterminacy.

    Original languageEnglish (US)
    Pages (from-to)217-235
    Number of pages19
    JournalEconomic Theory
    Volume20
    Issue number2
    DOIs
    StatePublished - Sep 2002

    Keywords

    • Constant and decreasing social returns
    • Cycles
    • Indeterminacy
    • Sector specific externalities

    ASJC Scopus subject areas

    • Economics and Econometrics

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