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Indeterminacy and Stability in a Modified Romer Model: A General Case

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  • Sergey Slobodyan

Abstract

This paper studies the dynamical properties of an extension of the well—known Romer model of endogenous growth introduced by Benhabib, Perli, and Xie (1994). This model differs from the Romer model by introducing complementarity of intermediate capital goods. It allows an indeterminate steady state for relatively mild degrees of the complementarity. We derive necessary and sufficient conditions for the steady state to be interior and strictly positive, which extend those discussed in Benhabib, Perli, and Xie (1994). We show that Hopf bifurcation to the absolutely stable steady state is impossible and that the steady state is determinate if the model parameter values belong to a certain set. For the set of parameter values that allows indeterminacy, we demonstrate the possibility of Hopf bifurcation using both analytical and numerical approaches. The indeterminate steady state can undergo Hopf bifurcation for a wide range of parameter values.

Suggested Citation

  • Sergey Slobodyan, 2006. "Indeterminacy and Stability in a Modified Romer Model: A General Case," CERGE-EI Working Papers wp284, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp284
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    References listed on IDEAS

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    1. Lutz G. Arnold, 2000. "Endogenous technological change: a note on stability," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(1), pages 219-226.
    2. Arnold, Lutz G., 2000. "Stability of the Market Equilibrium in Romer's Model of Endogenous Technological Change: A Complete Characterization," Journal of Macroeconomics, Elsevier, vol. 22(1), pages 69-84, January.
    3. Asada, Toichiro & Semmler, Willi & Novak, Andreas J., 1998. "Endogenous growth and the balanced growth equilibrium," Research in Economics, Elsevier, vol. 52(2), pages 189-212, June.
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    More about this item

    Keywords

    Indeterminacy; stability; Hopf bifurcation; Romer model.;

    JEL classification:

    • 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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