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On the emergence of competitive equilibrium growth cycles

Author

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  • Jean-Pierre Drugeon

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

A basic discrete-time heterogeneous capital goods competitive environment is considered, its potential for displaying steady growth solutions analyzed and the properties of the latter characterized. A first composite good may be used for consumption or investment on a one-to-one basis, while a second good is only used for accumulation, solely capital inputs being part of the production process. This framework is first considered from the allocative standpoint through the derivation of the frontier of the production possibility set. Having defined the perfect foresight competitive equilibrium that also describes a Pareto optimum over time, attention is then given to the potential for unbounded steady growth solutions. Under interiority, summability, and expansivity restrictions, there is a unique optimal steady growth rate. For unitary depreciation rates of both capital goods, locally there exists a unique convergent sequence to this steady growth solution that exhibits a saddlepoint structure. However, as soon as one of the depreciation rates of the capital goods is non-unitary and the profit share accruing to the first capital stock is greater in the second pure accumulation industry than in the first composite good industry, the steady growth solution shows a loss of stability, and competitive equilibrium growth cycles emerge through the occurrence of a flip bifurcation in its neighborhood. This is the first optimal cycles result based upon a production set that does not explicitly incorporate any exogenously determined primary labor input in its definition.

Suggested Citation

  • Jean-Pierre Drugeon, 2013. "On the emergence of competitive equilibrium growth cycles," Post-Print hal-00756574, HAL.
  • Handle: RePEc:hal:journl:hal-00756574
    DOI: 10.1007/s00199-011-0631-9
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    Citations

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    Cited by:

    1. Daria ONORI & Francesco MAGRIS & Antoine LE RICHE, 2017. "Monetary Rules in a Two-Sector Endogenous Growth Model with Cash-in-Advance Constraint," LEO Working Papers / DR LEO 2504, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    2. Antoine Riche & Francesco Magris & Daria Onori, 2020. "Monetary rules in a two-sector endogenous growth model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(4), pages 1049-1100, June.
    3. Gomes, Orlando, 2015. "Optimal resource allocation in a representative investor economy," Economic Modelling, Elsevier, vol. 50(C), pages 72-84.
    4. Fu, Wentao & Le Riche, Antoine, 2021. "Endogenous growth model with Bayesian learning and technology selection," Mathematical Social Sciences, Elsevier, vol. 114(C), pages 58-71.
    5. Yuichi Furukawa, 2015. "Leapfrogging cycles in international competition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(2), pages 401-433, June.

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