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Indeterminancy and Sunspots with Constant Returns

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  • Benhabib, Jess
  • Nishimura, Kazuo

Abstract

We show that indeterminacy can easily arise in multi-sector models that have constant variable returns to scale and very small market imperfections. This is in sharp contrast to models that require increasing returns to generate indeterminacy, and which have been criticized on the basis of recent empirical estimates indicating that returns to scale are roughly constant, and that market imperfections are small. We also show that we can calibrate our constant returns model with sunspots, using standard parametrizations to produce a close match to the moments of aggregate consumption, investment, output and employment in U.S. data.

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File URL: http://econ.as.nyu.edu/docs/IO/9383/RR96-44.PDF
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Bibliographic Info

Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 96-44.

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Length: 48 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:cvs:starer:96-44

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Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
Phone: (212) 998-8936
Fax: (212) 995-3932
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Web page: http://econ.as.nyu.edu/object/econ.cvstarr.html
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Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
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Related research

Keywords: Indeterminacy; multiple equilibria; sunspots;

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Cited by:
  1. Aguiar-Conraria, Luis & Wen, Yi, 2004. "Foreign Trade and Equilibrium Indeterminacy," Working Papers 04-09, Cornell University, Center for Analytic Economics.

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