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

Abstract

ACL-3International audienceWe analyze local indeterminacy and sunspot-driven fluctuations in the standard two-sector model with additively separable preferences. We provide a detailed theoretical analysis enabling us to derive relevant bifurcation loci and to characterize the steady-state local stability properties 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. (This abstract was borrowed from another version of this item.

Hysteresis in unemployment: A confidence channel

“…7 See Blanchard et al (2015) and Ball (2009) for recent empirical evidence of hysteresis in output and unemployment. 8 The multiplicity of steady-state equilibria is the key difference between the model in this paper and the previous generation of endogenous business cycles models such as Farmer and Guo (1994), Benhabib and Farmer (1994) and, more recently, Nishimura et al (2013) and Dufourt et al (2016), among others. These models exhibit dynamic indeterminacy but all dynamic paths converge to a single steady state.…”

“…() and Dufourt et al . (), among others. These models exhibit dynamic indeterminacy but all dynamic paths converge to a single steady state.…”

On sunspots, bank runs, and Glass–Steagall

“…The International Journal of Economic Theory has provided an excellent home for work on economic dynamics, including sunspot dynamics. See, for example,Dufourt et al (2016).…”