Indeterminacy and sunspots with constant returns

Jess Benhabib, Kazuo Nishimura

    Research output: Contribution to journalArticle

    Abstract

    We show that indeterminacy can easily arise in multisector models that have constant variable returns to scale and very small market imperfections. This is in sharp contrast to models that require increasing returns to generate indeterminacy and which have been criticized on the basis of recent empirical estimates indicating that returns to scale are roughly constant and that market imperfections are small. We also show that we can calibrate our constant returns model with sunspots, using standard parametrizations to produce a close match to the moments of aggregate consumption, investment, output, and employment in US data. Journal of Economic Literature Classification Numbers: E00, E3, O40.

    Original languageEnglish (US)
    Pages (from-to)58-96
    Number of pages39
    JournalJournal of Economic Theory
    Volume81
    Issue number1
    DOIs
    StatePublished - Jul 1998

    ASJC Scopus subject areas

    • Economics and Econometrics

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