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Sunspot Fluctuations in Two-sector Economies with Heterogeneous Agents

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  • Stefano Bosi
  • Francesco Magris
  • Alain Venditti

Abstract

We study a two-sector model with heterogeneous agents and borrowing constraint on labor income. We show that the relative capital intensity difference across sectors is crucial for the conditions required to get indeterminacy and endogenous fluctuations. When the consumption sector is significantly capital intensive, indeterminacy occurs with elasticities of capital-labor substitution which are in accordance with recent empirical estimates and with a large set of values for the elasticity of the offer curve. When the investment good is capital intensive, indeterminacy requires a quite low elasticity of substitution in the consumption good sector while this elasticity may remain close to unity for the investment good. In both cases, persistent endogenous cycles may also appear through flip or Hopf bifurcations.
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Suggested Citation

  • Stefano Bosi & Francesco Magris & Alain Venditti, 2007. "Sunspot Fluctuations in Two-sector Economies with Heterogeneous Agents," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 33(2), pages 311-331, November.
    • Handle: RePEc:spr:joecth:v:33:y:2007:i:2:p:311-331
    DOI: 10.1007/s00199-006-0116-4
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    7. Stefano Bosi & Francesco Magris & Alain Venditti, 2005. "Multiple equilibria in a cash‐in‐advance two‐sector economy," International Journal of Economic Theory, The International Society for Economic Theory, vol. 1(2), pages 131-149, June.
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    Cited by:

    1. Christian Myohl & Yannic Stucki, 2018. "Confidence and the Financial Accelerator," Diskussionsschriften dp1823, Universitaet Bern, Departement Volkswirtschaft.
    2. Franz Wirl, 2011. "Conditions for indeterminacy and thresholds in neoclassical growth models," Journal of Economics, Springer, vol. 102(3), pages 193-215, April.
    3. Wilson, Matthew S., 2020. "A real business cycle model with money as a sunspot variable," Journal of Economics and Business, Elsevier, vol. 109(C).
    4. Chen, Yan & Zhang, Yan, 2008. "Are Progressive Income Taxes Stabilizing? : A Reply," MPRA Paper 11460, University Library of Munich, Germany.

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    More about this item

    Keywords

    Heterogeneous agents; Borrowing constraint; Two-sector model; Indeterminacy; C61; E32; E41;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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