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Can Consumption Spillovers Be A Source Of Equilibrium Indeterminacy?

  • Jaime Alonso-Carrera
  • Jordi caballe

    ()

  • Xavier Raurich

    ()

In this paper, we show that consumption externalities are a source of equilibrium indeterminacy in a growth model with endogenous labor supply. In particular, when the marginal rate of substitution between own consumption and the others’ consumption is constant along the equilibrium path, the equilibrium does not exhibit indeterminacy. In contrast, when that marginal rate of substitution is not constant, the equilibrium may exhibit indeterminacy even if the elasticity of the labor demand is smaller than the elasticity of the Frisch labor supply.

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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2007-13.

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Length: 24 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:een:camaaa:2007-13
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  1. Lloyd-Braga, Teresa & Nourry, Carine & Venditti, Alain, 2006. "Indeterminacy with Small Externalities: The Role of Non-Separable Preferences," CEPR Discussion Papers 5541, C.E.P.R. Discussion Papers.
  2. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2004. "Welfare Implications of the Interaction between Habits and Consumption Externalities," UFAE and IAE Working Papers 639.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2005. "Can consumption spillovers be a source of equilibrium indeterminacy?," UFAE and IAE Working Papers 657.05, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Mark Weder, 2000. "Consumption Externalities, Production Externalities and Indeterminacy," Metroeconomica, Wiley Blackwell, vol. 51(4), pages 435-453, November.
  5. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
  6. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
  7. Fernandez, Esther & Novales, Alfonso & Ruiz, Jesus, 2004. "Indeterminacy under non-separability of public consumption and leisure in the utility function," Economic Modelling, Elsevier, vol. 21(3), pages 409-428, May.
  8. Bennett, R.L. & Farmer, R.E.A., 1999. "Indeterminacy with Non-Separable Utility," Economics Working Papers eco99/34, European University Institute.
  9. Been-Lon Chen, 2007. "Multiple BGPs in a Growth Model with Habit Persistence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(1), pages 25-48, 02.
  10. Liu, Wen-Fang & Turnovsky, Stephen J., 2005. "Consumption externalities, production externalities, and long-run macroeconomic efficiency," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1097-1129, June.
  11. S. Rao Aiyagari, 1995. "Comments on Farmer and Guo's "The econometrics of indeterminacy: an applied study."," Working Papers 543, Federal Reserve Bank of Minneapolis.
  12. Hintermaier, Thomas, 2003. "On the minimum degree of returns to scale in sunspot models of the business cycle," Journal of Economic Theory, Elsevier, vol. 110(2), pages 400-409, June.
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