Consumption Externalities and Equilibrium Dynamics with Heterogenous Agents

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Consumption Externalities and Equilibrium Dynamics with Heterogenous Agents

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Kazuo Mino () (Graduate School of Economics, Osaka University)
Yasuhiro Nakamoto () (Graduate School of Economics, Osaka University)

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Abstract

This paper explores the effect of consumption externalities on equilibrium dynamics of a standard neoclassical growth model in which there are two types of agents. To emphasize the presence of heterogenous agents, we distinguish intergroup consumption externalities from intragroup consumption externalities. We show that if the intragroup externalities dominates the intrergroup external effects, then the steady state equilibrium satisfies saddle-point stability and the equilibrium path of the economy is uniquely determined. In contrast, if the intergroup external effects of consumption are strong enough, the steady-state equilibrium is either unstable or locally indeterminate. Based on the analytical as well as numerical considerations, we give intuitive implications of stability conditions.

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Publisher Info
Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 08-30.

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Length: 30 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:osk:wpaper:0830

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
O42 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-10-13 (All new papers)
NEP-CBA-2008-10-13 (Central Banking)
NEP-DGE-2008-10-13 (Dynamic General Equilibrium)
NEP-MAC-2008-10-13 (Macroeconomics)
NEP-NET-2008-10-13 (Network Economics)
NEP-URE-2008-10-13 (Urban & Real Estate Economics)

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