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On the emergence of competitive equilibrium growth cycles

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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
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00756574
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    References listed on IDEAS

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    4. 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.

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    More about this item

    Keywords

    Optimal cycles; Unbounded steady growth; Production possibility frontier;
    All these keywords.

    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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