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Can Consumption Spillovers Be A Source Of Equilibrium Indeterminacy?

Author

Listed:
  • Jaime Alonso-Carrera
  • Jordi caballe
  • Xavier Raurich

Abstract

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.

Suggested Citation

  • Jaime Alonso-Carrera & Jordi caballe & Xavier Raurich, 2007. "Can Consumption Spillovers Be A Source Of Equilibrium Indeterminacy?," CAMA Working Papers 2007-13, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2007-13
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2021-06/13_alonso-carrera_caballe_raurich_2007.pdf
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    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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