Jang-Ting Guo () (Department of Economics, University of California Riverside) Sharon G. Harrison () (Department of Economics, Barnard College, Columbia University)
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We examine a two-sector real business cycle model with sector-specific externalities in the production of distinct consumption and investment goods. In addition, the household utility is postulated to exhibit no income effect on the demand for leisure. Unlike in the one-sector counterpart, we show that equilibrium indeterminacy can result with sufficiently high returns-to-scale in the production of investment goods. We also find that the smaller the labor supply elasticity, the lower the threshold level of returns-to-scale needed for generating indeterminacy and sunspots. This finding turns out to be exactly the opposite of that in all existing RBC-based indeterminacy studies.
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Paper provided by University of California at Riverside, Department of Economics in its series Working Papers with number
200809.
Find related papers by JEL classification: E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data) E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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