Indeterminacy and Sunspots in Two-Sector RBC Models with Generalized No-Income-Effect Preferences

Frédéric Dufourt, Kazuo Nishimura and Alain Venditti

No 1514, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: We analyze sunspot-driven fluctuations in the standard two-sector RBC model with moderate increasing returns to scale and generalized no-income-effect preferences à la Greenwood, Hercovitz and Huffman [13]. 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. We show that local indeterminacy occurs through flip and Hopf bifurcations for a large set of values for the elasticity of intertemporal substitution in consumption, provided that the labor supply is sufficiently inelastic. Finally, we provide a detailed quantitative analysis of the model. Computing, on a quarterly basis, a new set of empirical moments related to two broadly defined consumption and investment sectors, we are able to identify, among the set of admissible calibrations consistent with sunspot equilibria, the ones that provide the best fit of the data. The model properly calibrated solves several empirical puzzles traditionally associated with two-sector RBC models.

Keywords: Indeterminacy; sunspots; two-sector model; sector-specific externalities; real business cycles (search for similar items in EconPapers)
JEL-codes: C62 E32 O41 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2015-03
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (24)

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Related works:
Journal Article: Indeterminacy and sunspots in two-sector RBC models with generalized no-income-effect preferences (2015)
Working Paper: Indeterminacy and sunspots in two-sector RBC models with generalized no-income-effect preferences (2015)
Working Paper: Indeterminacy and Sunspots in Two-Sector RBC Models with Generalized No-Income-Effect Preferences (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:1514

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