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Indeterminacy and expectation-driven fluctuations with non-separable preferences

  • Nishimura, Kazuo
  • Venditti, Alain

We consider a continuous-time two-sector infinite-horizon model with sector-specific externalities, endogenous labor and a concave homogeneous non-separable utility function. We show that local indeterminacy arises with a low elasticity of intertemporal substitution in consumption provided the wage elasticity of the labor supply and the elasticity of substitution between consumption and leisure are low enough. Such a result cannot hold with additively separable preferences for which local indeterminacy requires a large enough elasticity of intertemporal substitution in consumption.

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Article provided by Elsevier in its journal Mathematical Social Sciences.

Volume (Year): 60 (2010)
Issue (Month): 1 (July)
Pages: 46-56

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Handle: RePEc:eee:matsoc:v:60:y:2010:i:1:p:46-56
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505565

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