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Regime-Switching Sunspot Equilibria in a One-Sector Growth Model with Aggregate Decreasing Returns and Small Externalities

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  • Takashi Kamihigashi

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

This paper shows that regime-switching sunspot equilibria easily arise in a one-sector growth model with aggregate decreasing returns and arbitrarily small externalities. We construct a regime-switching sunspot equilibrium in the case where the utility function of consump-tion is linear. We also construct a stochastic optimal growth model whose optimal process is a regime-switching sunspot equilibrium of the original economy in the case where there is no capital externality. We illustrate our results with numerical examples.

Suggested Citation

  • Takashi Kamihigashi, 2015. "Regime-Switching Sunspot Equilibria in a One-Sector Growth Model with Aggregate Decreasing Returns and Small Externalities," Discussion Paper Series DP2015-42, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:dp2015-42
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    References listed on IDEAS

    as
    1. Kamihigashi, Takashi, 2003. "Necessity of transversality conditions for stochastic problems," Journal of Economic Theory, Elsevier, vol. 109(1), pages 140-149, March.
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