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Local indeterminacy in continuous-time models: the role of returns to scale


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  • Jean-Philippe Garnier

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)

  • Kazuo Nishimura

    (Kyoto University - Kyoto University)

  • Alain Venditti

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)


The aim of this paper is to discuss the role of the returns to scale at the private and social levels on the local determinacy properties of the steady state in a continuous-time two-sector economy with sector-specific externalities. First we show that when labor is inelastic, for any configuration of the returns to scale, local indeterminacy is obtained if there is a capital intensity reversal between the private and the social levels. Second, we prove that when labor is infinitely elastic, saddle-point stability is obtained as soon as the investment good sector has constant social returns while local indeterminacy arises if the investment good sector has increasing social returns, provided the consumption good is labor intensive at the social level and the elasticity of intertemporal substitution in consumption admits intermediary values. Finally, we show that local indeterminacy requires a low elasticity of labor when the investment good has constant social returns, but requires either low enough or large enough elasticity of labor when the investment good has increasing social returns.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00281382.

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Date of creation: 22 May 2008
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Handle: RePEc:hal:wpaper:halshs-00281382

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Keywords: Sector-specific externalities; constant and increasing returns; intertemporal substitution in consumption; elastic labor; indeterminacy.;

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Cited by:
  1. Frédéric Dufourt & Kazuo Nishimura & Alain Venditti, 2013. "Indeterminacy and Sunspot Fluctuations in Two-Sector RBC models: Theory and Calibration," Working Papers halshs-00796703, HAL.
  2. Nishimura, Kazuo & Venditti, Alain, 2010. "Indeterminacy and expectation-driven fluctuations with non-separable preferences," Mathematical Social Sciences, Elsevier, Elsevier, vol. 60(1), pages 46-56, July.


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