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Dynamic effects of consumption externalities

Author

Listed:
  • Riham Barbar

    (San Francisco State University)

  • Mohanad Ismael

    (Birzeit University)

Abstract

This paper examines the dynamic effects of consumption externalities in Bosi and Seegmuller (J Math Econ 46:475–492, 2010). We show that only the patient agent holds the entire capital stock at the steady state, while the impatient agent works to finance his consumption. Our main result states that consumption externalities represent the main mechanism that explains the emergence of endogenous fluctuations due to self-fulfilling expectations. Finally, consumption externalities promote the appearance of deterministic cycles of period two.

Suggested Citation

  • Riham Barbar & Mohanad Ismael, 2020. "Dynamic effects of consumption externalities," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 43(2), pages 725-750, December.
    • Handle: RePEc:spr:decfin:v:43:y:2020:i:2:d:10.1007_s10203-020-00296-6
    DOI: 10.1007/s10203-020-00296-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Consumption externalities; Bifurcations; Heterogeneous agents; Borrowing constraint; Local indeterminacy; Self-fulfilling expectations; Endogenous fluctuations;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D30 - Microeconomics - - Distribution - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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