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Monopolistic competition, indeterminacy and growth

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  • Benhabib, Jess
  • Perli, Roberto
  • Xie, Danyang

Abstract

In this paper we analyse the dynamics of both Romer's original model of endogenous growth and of a modified version where the level of labour and human capital are determined endogenously. We find that the original model can have an indeterminate Balanced Growth Path (BGP) if there is some degree of complementarity between the intermediate inputs, and if agents have a high intertemporal elasticity of substitution of consumption. Once we allow for the endogenous determination of labour and of total human capital, we find that equilibrium can be indeterminate with a much lower elasticity of intertemporal substitution of consumption. Moreover, if some modest increasing returns are introduced into the production function for human capital, the issue of global as opposed to local indeterminacy arises: this refers to situations when there exist multiple determinate BGPs, but where the global dynamics is still indeterminate from given initial conditions.

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File URL: http://mpra.ub.uni-muenchen.de/37411/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37411.

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Date of creation: 1994
Date of revision: 1994
Handle: RePEc:pra:mprapa:37411

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Related research

Keywords: Endogenous growth; indeterminacy; transitional dynamics;

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References

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  1. Jordi Galí, 1993. "Monopolistic competition, business cycles and the composition of aggregate demand," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 45, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  3. Xie Danyang, 1994. "Divergence in Economic Performance: Transitional Dynamics with Multiple Equilibria," Journal of Economic Theory, Elsevier, Elsevier, vol. 63(1), pages 97-112, June.
  4. Benhabib, J. & Farmer, R.E.A, 1991. "Indeterminacy and Increasing Returns," Papers, Cambridge - Risk, Information & Quantity Signals 165, Cambridge - Risk, Information & Quantity Signals.
  5. Mulligan, C.B. & Sala-i-Martin, X., 1992. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," Papers, Yale - Economic Growth Center 651, Yale - Economic Growth Center.
  6. Benhabib Jess & Perli Roberto, 1994. "Uniqueness and Indeterminacy: On the Dynamics of Endogenous Growth," Journal of Economic Theory, Elsevier, Elsevier, vol. 63(1), pages 113-142, June.
  7. Roger E.A. Farmer & Jang Ting Guo, 1992. "Real Business Cycles and the Animal Spirits Hypothesis," UCLA Economics Working Papers, UCLA Department of Economics 680, UCLA Department of Economics.
  8. repec:fth:harver:1532 is not listed on IDEAS
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Citations

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Cited by:
  1. Benhabib, Jess & Nishimura, Kazuo, 1996. "Indeterminancy and Sunspots with Constant Returns," Working Papers, C.V. Starr Center for Applied Economics, New York University 96-44, C.V. Starr Center for Applied Economics, New York University.
  2. Dmitri Kolyuzhnov & Anna Bogomolova, 2004. "Escape Dynamics: A Continuous Time Approximation," Econometric Society 2004 Far Eastern Meetings, Econometric Society 557, Econometric Society.
  3. Boyan Jovanovic, 1995. "A CES Indirect Production Function," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0188, National Bureau of Economic Research, Inc.
  4. Gali, Jordi, 1995. "Product Diversity, Endogenous Markups and Development Traps," Working Papers, C.V. Starr Center for Applied Economics, New York University 95-09, C.V. Starr Center for Applied Economics, New York University.
  5. Benhabib, Jess & Farmer, Roger E.A., 1996. "Indeterminacy and Sector-Specific Externalities," Working Papers, C.V. Starr Center for Applied Economics, New York University 96-12, C.V. Starr Center for Applied Economics, New York University.
  6. Maria João Ribeiro Thompson, 2003. "Complementarities, Costly Investment and Multiple Equilibria in a One-Sector Endogenous Growth Model," NIPE Working Papers, NIPE - Universidade do Minho 7/2003, NIPE - Universidade do Minho.
  7. Shigoka, Tadashi, 1997. "On the nonstationary sunspot equilibria generated by an unbounded growth model," Japan and the World Economy, Elsevier, Elsevier, vol. 9(2), pages 261-277, May.
  8. Finn Martensen, 2013. "Globalization, Unemployment, and Product Cycles: Short- and Long-Run Effects," Working Paper Series of the Department of Economics, University of Konstanz, Department of Economics, University of Konstanz 2013-16, Department of Economics, University of Konstanz.
  9. Dmitri Kolyuzhnov & Anna Bogomolova, 2004. "Escape Dynamics: A Continuous Time Approximation," Computing in Economics and Finance 2004, Society for Computational Economics 190, Society for Computational Economics.
  10. Grune, Lars & Semmler, Willi, 2004. "Using dynamic programming with adaptive grid scheme for optimal control problems in economics," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 28(12), pages 2427-2456, December.
  11. Benhabib, Jess, 1998. "Introduction to Sunspots in Macroeconomics," Journal of Economic Theory, Elsevier, Elsevier, vol. 81(1), pages 1-6, July.
  12. Nishimura, Kazuo & Venditti, Alain, 2002. "Intersectoral Externalities and Indeterminacy," Journal of Economic Theory, Elsevier, Elsevier, vol. 105(1), pages 140-157, July.
  13. Slobodyan, Sergey, 2007. "Indeterminacy and stability in a modified Romer model," Journal of Macroeconomics, Elsevier, Elsevier, vol. 29(1), pages 169-177, March.
  14. Mino, Kazuo, 2006. "Voracity vs. scale effect in a growing economy without secure property rights," Economics Letters, Elsevier, Elsevier, vol. 93(2), pages 278-284, November.
  15. Steger, Thomas M., 2002. "Transitional dynamics in R&D-based models of endogenous growth," Wirtschaftswissenschaftliche Diskussionspapiere, Ernst Moritz Arndt University of Greifswald, Faculty of Law and Economics 04/2002, Ernst Moritz Arndt University of Greifswald, Faculty of Law and Economics.
  16. Arnold, Lutz G. & Kornprobst, Wolfgang, 2006. "The Dynamics of the Romer R&D Growth Model with Quality Upgrading," University of Regensburg Working Papers in Business, Economics and Management Information Systems 413, University of Regensburg, Department of Economics.
  17. Dmitri Kolyuzhnov & Anna Bogomolova, 2004. "Escape Dynamics: A Continuous Time Approximation," Econometric Society 2004 Latin American Meetings, Econometric Society 27, Econometric Society.

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