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Endogenous Fluctuations in Two-Sector Models: Role of Preferences

Author

Listed:
  • Alain Venditti

  • Kazuo Nishimura

    (Kyōto daigaku = Kyoto University)

  • Harutaka Takahashi

    (Department of Economics, Meiji Gakuin University - Meiji Gakuin University)

Abstract

We consider a discrete-time two-sector CES (constant elasticity of substitution) economy with sector specific external effects and nonlin- ear preferences. Our goal is to examine carefully the influence of the utility curvature on the occurrence of multiple equilibria. We show that local in- determinacy depends on an interplay between factor substitutability and the elasticity of intertemporal substitution in consumption. Moreover, consider- ing that, when the external effects are set equal to zero, we get a two-sector optimal growth model, we study also the role of the utility curvature on the occurrence of competitive equilibrium cycles. We show that persistent en- dogenous fluctuations and macroeconomic volatility require a strong enough elasticity of intertemporal substitution in consumption.

Suggested Citation

  • Alain Venditti & Kazuo Nishimura & Harutaka Takahashi, 2006. "Endogenous Fluctuations in Two-Sector Models: Role of Preferences," Post-Print halshs-00280007, HAL.
    • Handle: RePEc:hal:journl:halshs-00280007
    DOI: 10.1007/s10957-006-9025-8
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    Cited by:

    1. Ghiglino, Christian & Venditti, Alain, 2007. "Wealth inequality, preference heterogeneity and macroeconomic volatility in two-sector economies," Journal of Economic Theory, Elsevier, vol. 135(1), pages 414-441, July.
    2. Kazuo Nishimura & Alain Venditti, 2012. "Indeterminacy in Discrete-Time Infinite-Horizon Models with Non-linear Utility and Endogenous Labor," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 363-400, Springer.
    3. Jean-Philippe Garnier, 2013. "Keeping-up with the Joneses, a new source of fluctuations in the two-sector continuous-time models," Working Papers hal-00991664, HAL.
    4. Venditti, Alain, 2005. "The two sector overlapping generations model: A simple formulation," Research in Economics, Elsevier, vol. 59(2), pages 164-188, June.
    5. Christian Ghiglino & Alain Venditti, 2008. "The role of the wealth distribution on output volatility," Working Papers halshs-00281379, HAL.

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