Intertemporal substitution in consumption, labor supply elasticity and sunspot fluctuations in continuous-time models
AbstractThe aim of his paper is to discuss the roles of the elasticity of intertemporal substitution in consumption and the elasticity of the labor supply on the local determinacy properties of the steady state in a two-sector economy with CES technologies and sector-specific externalities. Our main results provide necessary and sufficient conditions for local indeterminacy. First we show that the consumption good sector needs to be capital intensive at the private level and labor intensive at the social level. Second, we prove that under this capital intensity configuration, the existence of sunspot fluctuations is obtained if and only if the elasticity of intertemporal substitution in consumption is large enough but the elasticity of the labor supply is low enough. In particular, we will show on the one hand that when the labor supply is infinitely elastic, the steady state is always saddle-point stable, and on the other hand that when the elasticity of intertemporal substitution in consumption is infinite, labor does not have any influence on the local stability properties of the equilibrium path.
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Bibliographic InfoArticle provided by The International Society for Economic Theory in its journal International Journal of Economic Theory.
Volume (Year): 3 (2007)
Issue (Month): 4 ()
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1742-7355
Other versions of this item:
- Jean-Philippe Garnier & Kazuo Nishimura & Alain Venditti, 2007. "Intertemporal Substitution In Consumption, Labor Supply Elasticity And Sunspot Fluctuations In Continuous-Time Models," Working Papers halshs-00352367, HAL.
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- Frédéric Dufourt & Kazuo Nishimura & Alain Venditti, 2013.
"Indeterminacy and Sunspot Fluctuations in Two-Sector RBC models: Theory and Calibration,"
- Frédéric Dufourt & Kazuo Nishimura & Alain Venditti, 2013. "Indeterminacy and Sunspot Fluctuations in Two-Sector RBC models: Theory and Calibration," AMSE Working Papers 1315, Aix-Marseille School of Economics, Marseille, France, revised Nov 2009.
- Frederic Dufourt & Kazuo Nishimura & Alain Venditti, 2013. "Indeterminacy and sunspot fluctuations in two-sector RBC models: theory and calibration," Working Papers halshs-00796236, HAL.
- Stefano Bosi & Thomas Seegmuller, 2007.
"On the Ramsey equilibrium with heterogeneous consumers and endogenous labor supply,"
Documents de travail du Centre d'Economie de la Sorbonne
v07003a, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Jul 2007.
- Bosi, Stefano & Seegmuller, Thomas, 2010. "On the Ramsey equilibrium with heterogeneous consumers and endogenous labor supply," Journal of Mathematical Economics, Elsevier, vol. 46(4), pages 475-492, July.
- Stefano Bosi & Thomas Seegmuller, 2007. "On the Ramsey Equilibrium with heterogeneous consumers and endogenous labor supply," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00143421, HAL.
- Nishimura, Kazuo & Venditti, Alain, 2010.
"Indeterminacy and expectation-driven fluctuations with non-separable preferences,"
Mathematical Social Sciences,
Elsevier, vol. 60(1), pages 46-56, July.
- Kazuo Nishimura & Alain Venditti, 2010. "Indeterminacy and expectation-driven uctuations with non-separable preferences," KIER Working Papers 702, Kyoto University, Institute of Economic Research.
- Jean-Philippe Garnier, 2014. "Endogenous fluctutations: a financial transmission Mechanism," Working Papers hal-01006946, HAL.
- Jean-Philippe Garnier, 2013. "Keeping-up with the Joneses, a new source of fluctuations in the two-sector continuous-time models," Working Papers hal-00991664, HAL.
- Jean-Philippe Garnier, 2012. "Sunspots, cycles and adjustment costs in the two-sectors model," Working Papers hal-00991657, HAL.
- Magris, Francesco, 2012. "Indeterminacy and multiple steady states with sector-specific externalities," Economic Modelling, Elsevier, vol. 29(6), pages 2664-2672.
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