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Home Production and Indeterminacy with Variable Income Effects

Author

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  • Yan Zhang

    (Wenlan School of Business, Zhongnan University of Economics and Law)

Abstract

In this paper, we utilize a real business cycle model with home production, productive increasing returns and the Jaimovich-Rebelo’s preferences that allow for varying degrees of income effect, to show that when the values of income effect are intermediary and the level of increasing returns is reasonably high, the economy can be subject to local indeterminacy, provided that the other model parameters take reasonable values. In particular, we show that in the indeterminacy region, the minimum level of productive externality that induces instability increases as the income effect increases.

Suggested Citation

  • Yan Zhang, 2020. "Home Production and Indeterminacy with Variable Income Effects," Annals of Economics and Finance, Society for AEF, vol. 21(1), pages 153-172, May.
  • Handle: RePEc:cuf:journl:y:2020:v:21:i:1:zhang
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    References listed on IDEAS

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    6. Abad, Nicolas & Seegmuller, Thomas & Venditti, Alain, 2017. "Nonseparable Preferences Do Not Rule Out Aggregate Instability Under Balanced-Budget Rules: A Note," Macroeconomic Dynamics, Cambridge University Press, vol. 21(1), pages 259-277, January.
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    More about this item

    Keywords

    Aggregate externalities; Income effects; Home production; Local indeterminacy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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