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Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles

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  • Grandmont, Jean-Michel
  • Pintus, Patrick
  • de Vilder, Robin

Abstract

We develop in this paper simple geometrical methods to study local indeterminacy, bifurcations and stochastic (sunspot) equilibria near a steady state, in nonlinear two dimensional economic models. We present stochastic sunspot equilibria, which allows a constructive description of local bifurcations. The latter analysis is relevant when some eigenvalues of the linearized dynamics, near the steady state, have a modulus close to one (“unit root(s)”), as taking into account small nonlinearities generates linear local approximation. These methods are applied to a simple aggregative model (Woodford (JET, 1986)), to study in particular the influence of capital-labor substitution and of the aggregate labor supply wage elasticiy, on the occurrence of competitive endogenous deterministic or stochastic fluctuations.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 80 (1998)
Issue (Month): 1 (May)
Pages: 14-59

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Handle: RePEc:eee:jetheo:v:80:y:1998:i:1:p:14-59

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Web page: http://www.elsevier.com/locate/inca/622869

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