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Intertemporal Substitution In Consumption, Labor Supply Elasticity And Sunspot Fluctuations In Continuous-Time Models

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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)

Abstract

The 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 Info

Paper provided by HAL in its series Working Papers with number halshs-00352367.

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Date of creation: 01 Feb 2007
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Handle: RePEc:hal:wpaper:halshs-00352367

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00352367/en/
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Related research

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

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Cited by:
  1. Jean-Philippe Garnier, 2014. "Endogenous fluctutations: a financial transmission Mechanism," Working Papers hal-01006946, HAL.
  2. 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.
  3. 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.
  4. repec:hal:cesptp:halshs-00143421 is not listed on IDEAS
  5. 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.
  6. Jean-Philippe Garnier, 2012. "Sunspots, cycles and adjustment costs in the two-sectors model," Working Papers hal-00991657, HAL.
  7. Kazuo Nishimura & Alain Venditti, 2010. "Indeterminacy and expectation-driven uctuations with non-separable preferences," KIER Working Papers 702, Kyoto University, Institute of Economic Research.
  8. 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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