Monopolistic competition, indeterminacy and growth

Jess Benhabib, Roberto Perli, Danyang Xie

    Research output: Contribution to journalArticle

    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.

    Original languageEnglish (US)
    Pages (from-to)279-298
    Number of pages20
    JournalRicerche Economiche
    Volume48
    Issue number4
    DOIs
    StatePublished - 1994

    Fingerprint

    Indeterminacy
    Monopolistic competition
    Human capital
    Labor
    Balanced growth path
    Intermediate inputs
    Increasing returns
    Initial conditions
    Elasticity of intertemporal substitution
    Complementarity
    Global dynamics
    Endogenous growth
    Intertemporal elasticity of substitution
    Production function
    Local indeterminacy

    Keywords

    • Endogenous growth
    • indeterminacy
    • transitional dynamics

    Cite this

    Monopolistic competition, indeterminacy and growth. / Benhabib, Jess; Perli, Roberto; Xie, Danyang.

    In: Ricerche Economiche, Vol. 48, No. 4, 1994, p. 279-298.

    Research output: Contribution to journalArticle

    Benhabib, Jess ; Perli, Roberto ; Xie, Danyang. / Monopolistic competition, indeterminacy and growth. In: Ricerche Economiche. 1994 ; Vol. 48, No. 4. pp. 279-298.
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