Endogenous Fluctuations in Two-Sector Models: <br />Role of Preferences - HAL Access content directly
Journal articles Journal of Optimization Theory and Applications Year : 2006

Endogenous Fluctuations in Two-Sector Models:
Role of Preferences

Alain Venditti
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Kazuo Nishimura
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  • PersonId: 849135

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.
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Dates and versions

halshs-00280007, version 1 (16-05-2008)

Identifiers

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Alain Venditti, Kazuo Nishimura, Harutaka Takahashi. Endogenous Fluctuations in Two-Sector Models:
Role of Preferences. Journal of Optimization Theory and Applications, 2006, 128 (2), pp.309-331. ⟨10.1007/s10957-006-9025-8⟩. ⟨halshs-00280007⟩
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