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Sunspot fluctuations in two‐sector models: New results with additively separable preferences
Author(s) -
Dufourt Frédéric,
Nishimura Kazuo,
Venditti Alain
Publication year - 2016
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/ijet.12081
Subject(s) - economics , separable space , elasticity of intertemporal substitution , elasticity of substitution , indeterminacy (philosophy) , sunspot , econometrics , elasticity (physics) , price elasticity of supply , consumption (sociology) , microeconomics , mathematical economics , mathematics , price elasticity of demand , production (economics) , growth model , physics , mathematical analysis , thermodynamics , quantum mechanics , sociology , magnetic field , social science
We analyze the emergence of local indeterminacy and sunspot‐driven fluctuations in the standard two‐sector model with additively separable preferences as a function of various structural parameters influencing the degree of increasing returns to scale, the amount of intertemporal substitution in consumption, and the elasticity of the aggregate labor supply curve. On the theoretical side, we prove the existence of both a flip and a Hopf bifurcation locus in the corresponding parameter space. We also show that local indeterminacy can be obtained under any labor supply elasticity or under an arbitrarily low elasticity of intertemporal substitution in consumption. On the empirical side, we find that indeterminacy and sunspot fluctuations are robust features of two‐sector models, prevailing for most empirically plausible calibrations for these parameters.