Indeterminacy and Investment Adjustment Costs in an Endogenously Growing Small Open Economy
AbstractThis paper analytically examines the interrelations between macroeconomic (in)stability and investment adjustment costs in a one-sector endogenously growing small-open-economy representative agent model. We show that under costly capital accumulation, the economy exhibits indeterminacy and sunspots if and only if the equilibrium wage-hours locus slopes upwards and is steeper than the householdiÌs labor supply curve. By contrast, the econ- omy without adjustment costs for capital investment always displays saddle-path stability and equilibrium uniqueness, regardless of the degree of increasing returns in aggregate production.Â
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Bibliographic InfoPaper provided by University of California at Riverside, Department of Economics in its series Working Papers with number 200913.
Length: 13 pages
Date of creation: Nov 2009
Date of revision: Nov 2009
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- Lai, Chung-hui, 2013. "(In)determinacy, bargaining, and R&D policies in an economy with endogenous technological change," Economics Discussion Papers 2013-14, Kiel Institute for the World Economy.
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