Monopolistic competition, indeterminacy and growth
AbstractIn 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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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 37411.
Date of creation: 1994
Date of revision: 1994
Endogenous growth; indeterminacy; transitional dynamics;
Find related papers by JEL classification:
- E00 - Macroeconomics and Monetary Economics - - General - - - General
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
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