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Sunspot fluctuations in two‐sector models: New results with additively separable preferences

Author

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  • Frédéric Dufourt

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, AMU - Aix Marseille Université)

  • Kazuo Nishimura
  • Alain Venditti

Abstract

We analyze the emergence of local indeterminacy and sunspot‐driven fluctuations in the standard two‐sector model with additively separable preferences as a function of various structural parameters influencing the degree of increasing returns to scale, the amount of intertemporal substitution in consumption, and the elasticity of the aggregate labor supply curve. On the theoretical side, we prove the existence of both a flip and a Hopf bifurcation locus in the corresponding parameter space. We also show that local indeterminacy can be obtained under any labor supply elasticity or under an arbitrarily low elasticity of intertemporal substitution in consumption. On the empirical side, we find that indeterminacy and sunspot fluctuations are robust features of two‐sector models, prevailing for most empirically plausible calibrations for these parameters.

Suggested Citation

  • Frédéric Dufourt & Kazuo Nishimura & Alain Venditti, 2016. "Sunspot fluctuations in two‐sector models: New results with additively separable preferences," Post-Print hal-05659175, HAL.
    • Handle: RePEc:hal:journl:hal-05659175
    DOI: 10.1111/ijet.12081
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