Indeterminacy in a Small Open Economy Ramsey Growth Model
This paper presents a small open economy version of the Benhabib and Farmer  two sector optimal growth model with production externalities. It is shown that indeterminacy is considerably easier to obtain under a regime of perfect world capital markets than in the closed economy variant. Furthermore, the result is not dependent on high labour supply elasticity since that input is fixed. The paper also examines a variant that takes into account external borrowing constraints and it is shown that the qualitative results on indeterminacy remain basically unaffected by this extension.
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- Burnside, Craig, 1996. "Production function regressions, returns to scale, and externalities," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 177-201, April.
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- Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
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