Benhabib, Jess and Perli, Roberto and Xie, Danyang (1994): Monopolistic competition, indeterminacy and growth. Published in: Ricerche Economiche , Vol. 48, (1994): pp. 279-298.
Download (4Mb) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||Monopolistic competition, indeterminacy and growth|
|Keywords:||Endogenous growth; indeterminacy; transitional dynamics|
|Subjects:||E - Macroeconomics and Monetary Economics > E0 - General > E00 - General
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles
|Depositing User:||Danyang Xie|
|Date Deposited:||11. Apr 2012 13:47|
|Last Modified:||18. Feb 2013 01:18|
Benhabib J and Farmer R.E.A. (1994). Indeterminacy and increasing returns, Journal of Economic Theory, 63(1), 19-41.
Benhabib J. and Perli R. (1994). Uniqueness and indeterminacy: on the dynamics of endogenous growth. Journal of Economic Theory, 63(1), 113-142.
Boldrin, M. and Rustichini A. (1994). Indeterminacy of equilibria in models with infinitely lived agents and external effects. Econometrica, 62, 323-342.
Farmer R.E.A. and Guo J.T. (1994). Real business cycles and the animal spirit hypothesis. Journal of Economic Theory, 63(1), 42-72.
Gali J. (1994). Monopolistic competition, business cycles, and the composition of aggregate demand. Journal of Economic Theory, 63(1), 73-96.
Lucas R.E. (1988). On the mechanics of economic development, Journal of Monetary Economics, 22, 3-42.
Mankiw N.G., Romer D. and Weil D.N. (1990). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 429, 407-437.
Mulligan C.B. and Sala-i-Martin X. (1993). Transitional dynamics in two-sector models of endogenous growth. Quarterly Journal of Economics, 108, 739-773.
Romer P. (1990). Endogenous technological change. Journal of Political Economy, 98, S71-S102.
Xie D. (1994). Divergence in economic performance: transitional dynamics with multiple equilibria. Journal of Economic Theory, 63(1), 97-112.