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Business cycles fluctuations in three-sector intertemporal equilibrium models

Author

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  • Nishimura, Kazuo
  • Pelgrin, Florian
  • Venditti, Alain

Abstract

This paper introduces a novel mechanism driving endogenous business cycle fluctuations within a frictionless three-sector intertemporal equilibrium model. We emphasize the critical role of consumer preferences as a primary driver of cyclical dynamics by considering a consumption bundle composed of a pure consumption good and a mixed consumption-investment good that simultaneously serves as both a final consumption good and a capital-accumulating investment good. Endogenous fluctuations naturally arise from sectoral capital intensity differences, an intertemporal consumption trade-off between the two goods, or the interaction of both mechanisms. We offer a detailed characterization of the economy's dynamics, identifying the Hopf bifurcation conditions that trigger persistent cyclical behavior. Additionally, we explore the periodicity of the resulting limit cycles, providing insights into how shifts in preferences and sectoral complementarities can generate self-sustained macroeconomic fluctuations.

Suggested Citation

  • Nishimura, Kazuo & Pelgrin, Florian & Venditti, Alain, 2025. "Business cycles fluctuations in three-sector intertemporal equilibrium models," Journal of Economic Theory, Elsevier, vol. 226(C).
    • Handle: RePEc:eee:jetheo:v:226:y:2025:i:c:s0022053125000560
    DOI: 10.1016/j.jet.2025.106010
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    More about this item

    Keywords

    Three-sector intertemporal equilibrium growth models; Business cycles fluctuations; Hopf bifurcation; Endogenous cycle; Periodicity;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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