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Monopolistic competition, indeterminacy and growth

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  • Benhabib, Jess
  • Perli, Roberto
  • Xie, Danyang

Abstract

In this paper we analyse the dynamics of both Romer's original model of endogenous growth and of a modified version where the level of labour and human capital are determined endogenously. We find that the original model can have an indeterminate Balanced Growth Path (BGP) if there is some degree of complementarity between the intermediate inputs, and if agents have a high intertemporal elasticity of substitution of consumption. Once we allow for the endogenous determination of labour and of total human capital, we find that equilibrium can be indeterminate with a much lower elasticity of intertemporal substitution of consumption. Moreover, if some modest increasing returns are introduced into the production function for human capital, the issue of global as opposed to local indeterminacy arises: this refers to situations when there exist multiple determinate BGPs, but where the global dynamics is still indeterminate from given initial conditions.

Suggested Citation

  • Benhabib, Jess & Perli, Roberto & Xie, Danyang, 1994. "Monopolistic competition, indeterminacy and growth," MPRA Paper 37411, University Library of Munich, Germany, revised 1994.
  • Handle: RePEc:pra:mprapa:37411
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    File URL: https://mpra.ub.uni-muenchen.de/37411/1/MPRA_paper_37411.pdf
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    References listed on IDEAS

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    1. repec:fth:harver:1532 is not listed on IDEAS
    2. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
    3. Benhabib Jess & Perli Roberto, 1994. "Uniqueness and Indeterminacy: On the Dynamics of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 63(1), pages 113-142, June.
    4. Casey B. Mulligan & Xavier Sala-i-Martin, 1993. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 739-773.
    5. Xie Danyang, 1994. "Divergence in Economic Performance: Transitional Dynamics with Multiple Equilibria," Journal of Economic Theory, Elsevier, vol. 63(1), pages 97-112, June.
    6. Gali Jordi, 1994. "Monopolistic Competition, Business Cycles, and the Composition of Aggregate Demand," Journal of Economic Theory, Elsevier, vol. 63(1), pages 73-96, June.
    7. Farmer Roger E. A. & Guo Jang-Ting, 1994. "Real Business Cycles and the Animal Spirits Hypothesis," Journal of Economic Theory, Elsevier, vol. 63(1), pages 42-72, June.
    8. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Citations

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    Cited by:

    1. Bella, Giovanni & Mattana, Paolo, 2014. "Global indeterminacy of the equilibrium in the Chamley model of endogenous growth in the vicinity of a Bogdanov–Takens bifurcation," Mathematical Social Sciences, Elsevier, vol. 71(C), pages 69-79.
    2. Slobodyan, Sergey, 2007. "Indeterminacy and stability in a modified Romer model," Journal of Macroeconomics, Elsevier, vol. 29(1), pages 169-177, March.
    3. Nishimura, Kazuo & Venditti, Alain, 2002. "Intersectoral Externalities and Indeterminacy," Journal of Economic Theory, Elsevier, vol. 105(1), pages 140-157, July.
    4. Shigoka, Tadashi, 1997. "On the nonstationary sunspot equilibria generated by an unbounded growth model," Japan and the World Economy, Elsevier, vol. 9(2), pages 261-277, May.
    5. Benhabib, Jess & Nishimura, Kazuo, 1998. "Indeterminacy and Sunspots with Constant Returns," Journal of Economic Theory, Elsevier, vol. 81(1), pages 58-96, July.
    6. Benhabib, Jess, 1998. "Introduction to Sunspots in Macroeconomics," Journal of Economic Theory, Elsevier, vol. 81(1), pages 1-6, July.
    7. Dmitri Kolyuzhnov & Anna Bogomolova, 2004. "Escape Dynamics: A Continuous Time Approximation," Econometric Society 2004 Far Eastern Meetings 557, Econometric Society.
    8. Benhabib, Jess & Farmer, Roger E. A., 1996. "Indeterminacy and sector-specific externalities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 421-443, June.
    9. Grune, Lars & Semmler, Willi, 2004. "Using dynamic programming with adaptive grid scheme for optimal control problems in economics," Journal of Economic Dynamics and Control, Elsevier, vol. 28(12), pages 2427-2456, December.
    10. Doi, Junko & Mino, Kazuo, 2005. "Technological spillovers and patterns of growth with sector-specific R&D," Journal of Macroeconomics, Elsevier, vol. 27(4), pages 557-578, December.
    11. Benhabib, Jess & Gali, Jordi, 1995. "On growth and indeterminacy: some theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 163-211, December.
    12. Boyan Jovanovic, 1995. "A CES Indirect Production Function," NBER Technical Working Papers 0188, National Bureau of Economic Research, Inc.
    13. Steger, Thomas M., 2002. "Transitional dynamics in R&D-based models of endogenous growth," Wirtschaftswissenschaftliche Diskussionspapiere 04/2002, University of Greifswald, Faculty of Law and Economics.
    14. Perez-Sebastian, Fidel, 2000. "Transitional dynamics in an R&D-based growth model with imitation: Comparing its predictions to the data," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 437-461, April.
    15. Gali, Jordi, 1995. "Product diversity, endogenous markups, and development traps," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 39-63, August.
    16. Dmitri Kolyuzhnov & Anna Bogomolova, 2004. "Escape Dynamics: A Continuous Time Approximation," Econometric Society 2004 Latin American Meetings 27, Econometric Society.
    17. Arnold, Lutz G. & Kornprobst, Wolfgang, 2006. "The Dynamics of the Romer R&D Growth Model with Quality Upgrading," University of Regensburg Working Papers in Business, Economics and Management Information Systems 413, University of Regensburg, Department of Economics.
    18. Maria João Ribeiro Thompson, 2003. "Complementarities, Costly Investment and Multiple Equilibria in a One-Sector Endogenous Growth Model," NIPE Working Papers 7/2003, NIPE - Universidade do Minho.
    19. Arnold, Lutz G., 2000. "Stability of the Market Equilibrium in Romer's Model of Endogenous Technological Change: A Complete Characterization," Journal of Macroeconomics, Elsevier, vol. 22(1), pages 69-84, January.
    20. repec:eee:jetheo:v:172:y:2017:i:c:p:451-477 is not listed on IDEAS
    21. Finn Martensen, 2013. "Globalization, Unemployment, and Product Cycles: Short- and Long-Run Effects," Working Paper Series of the Department of Economics, University of Konstanz 2013-16, Department of Economics, University of Konstanz.
    22. Mino, Kazuo, 2006. "Voracity vs. scale effect in a growing economy without secure property rights," Economics Letters, Elsevier, vol. 93(2), pages 278-284, November.
    23. Dmitri Kolyuzhnov & Anna Bogomolova, 2004. "Escape Dynamics: A Continuous Time Approximation," Computing in Economics and Finance 2004 190, Society for Computational Economics.

    More about this item

    Keywords

    Endogenous growth; indeterminacy; transitional dynamics;

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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