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Local Determinacy with Non-separable Utility

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  • Patrick-Antoine Pintus

    ()
    (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

This paper introduces general formulations for both technology (with input substitution) and non-separable utility (compatible with balanced growth and stationary worked hours) into a benchmark RBC model. It is shown that intertemporal substitution and input substitutability lead to local determinacy and rule out stationary sunspot equilibria when labor demand is downward-sloping, in contrast with recent results obtained under the assumption of separable utility. The main intuition behind this result is shown to work as follows: in contrast with separable preferences, increasing the elasticity of intertemporal substitution in consumption necessarily implies decreasing the elasticity of constant-consumption labor supply, when utility is non-separable and concave, which affects unfavorably the occurrence of local indeterminacy.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00409585.

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Date of creation: 10 Aug 2009
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Handle: RePEc:hal:wpaper:halshs-00409585

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Related research

Keywords: real business cycles; intertemporal substitution; capital-labor substitution; externalities; indeterminacy; sunspots.;

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References

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  1. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," RCER Working Papers 467, University of Rochester - Center for Economic Research (RCER).
  2. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers 646, UCLA Department of Economics.
  3. Wen, Yi, 1998. "Capacity Utilization under Increasing Returns to Scale," Journal of Economic Theory, Elsevier, vol. 81(1), pages 7-36, July.
  4. Patrick Pintus, 2006. "Indeterminacy with almost constant returns to scale: capital-labor substitution matters," Economic Theory, Springer, vol. 28(3), pages 633-649, 08.
  5. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers 546, Board of Governors of the Federal Reserve System (U.S.).
  6. Wen, Yi, 2001. "Understanding self-fulfilling rational expectations equilibria in real business cycle models," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1221-1240, August.
  7. Bennett, Rosalind L. & Farmer, Roger E. A., 2000. "Indeterminacy with Non-separable Utility," Journal of Economic Theory, Elsevier, vol. 93(1), pages 118-143, July.
  8. Benhabib, Jess & Farmer, Roger E A, 1996. "Indeterminacy and Sector-specific Externalities," CEPR Discussion Papers 1403, C.E.P.R. Discussion Papers.
  9. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
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Citations

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Cited by:
  1. Busato, Francesco & Marchetti, Enrico, 2010. "Endogenous skill cycles," Research in Economics, Elsevier, vol. 64(3), pages 175-185, September.
  2. Francesco Busato & Enrico Marchetti, 2006. "Skills, sunspots and cycles," Economics Working Papers 2006-07, School of Economics and Management, University of Aarhus.
  3. 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.
  4. Wong, Tsz-Nga & Yip, Chong K., 2010. "Indeterminacy and the elasticity of substitution in one-sector models," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 623-635, April.
  5. Teresa Lloyd-Braga & Carine Nourry & Alain Venditti, 2006. "Indeterminacy with small externalities: The role of non-separable preferences," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(3-4), pages 217-239.
  6. Francesco Busato & Bruno Chiarini & Enrico Marchetti, 2005. "Indeterminacy, Underground Activities and Tax Evasion," Working Papers 289, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. Bosi, Stefano & Nishimura, Kazuo & Venditti, Alain, 2010. "Multiple equilibria in two-sector monetary economies: An interplay between preferences and the timing for money," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 997-1014, November.
  8. Magris, Francesco, 2012. "Indeterminacy and multiple steady states with sector-specific externalities," Economic Modelling, Elsevier, vol. 29(6), pages 2664-2672.
  9. Kazuo Nishimura & Alain Venditti, 2010. "Indeterminacy and expectation-driven uctuations with non-separable preferences," KIER Working Papers 702, Kyoto University, Institute of Economic Research.

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