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Endogenous Cycles in a Two-sector Overlapping Generations Model under Intertemporal Substitutability

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  • Thomas Seegmuller

    (EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

Endogenous cycles cannot emerge in one-sector monetary overlapping generations models when there is intertemporal substitutability,even if returns to scale are increasing. In this article, we show that the conclusions are different when there are two sectors. Considering a two-sector monetary overlapping generations economy, we assume that in each sector, households consume the two goodsproduced in the economy and firms produce one final good under an internal constant returns to scale technology. However, returns to scale are increasing at the social level because there are sectorspecific externalities. In this framework, we show that endogenous cycles can occur when households prefer to consume the good produced in the other sector. This result is essentially due tothe fact that aggregate consumption in each sector highly depends on the price of the good produced in the other sector. Moreover, we can notice that it does not depend on the substitutability orcomplementarity between the two goods.

Suggested Citation

  • Thomas Seegmuller, 2004. "Endogenous Cycles in a Two-sector Overlapping Generations Model under Intertemporal Substitutability," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194160, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00194160
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00194160
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    References listed on IDEAS

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    1. Harrison, Sharon G. & Weder, Mark, 2002. "Tracing externalities as sources of indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 26(5), pages 851-867, May.
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    4. Kazuo Nishimura & Jess Benhabib & Alain Venditti, 2002. "Indeterminacy and cycles in two-sector discrete-time model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(2), pages 217-235.
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