Monopolistic competition, indeterminacy and growth

Jess Benhabib, Roberto Perli, Danyang Xie

    Research output: Contribution to journalArticle

    Abstract

    In this paper we analyse the dynamics of both Romer's original model of endogenous growth and of a modified version where the level of labour and human capital are determined endogenously. We find that the original model can have an indeterminate Balanced Growth Path (BGP) if there is some degree of complementarity between the intermediate inputs, and if agents have a high intertemporal elasticity of substitution of consumption. Once we allow for the endogenous determination of labour and of total human capital, we find that equilibrium can be indeterminate with a much lower elasticity of intertemporal substitution of consumption. Moreover, if some modest increasing returns are introduced into the production function for human capital, the issue of global as opposed to local indeterminacy arises: this refers to situations when there exist multiple determinate BGPs, but where the global dynamics is still indeterminate from given initial conditions.

    Original languageEnglish (US)
    Pages (from-to)279-298
    Number of pages20
    JournalRicerche Economiche
    Volume48
    Issue number4
    DOIs
    StatePublished - Dec 1994

    Keywords

    • Endogenous growth
    • indeterminacy
    • transitional dynamics

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