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2017 | OriginalPaper | Buchkapitel

3. Indeterminacy in Endogenous Growth Models

verfasst von : Kazuo Mino

Erschienen in: Growth and Business Cycles with Equilibrium Indeterminacy

Verlag: Springer Japan

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Abstract

This chapter examines endogenous growth models in which equilibrium intermediacy may emerge. It is known that some endogenous growth models assume that there is no market distortion and that every production factor is reproducible under constant returns to scale technologies. In this class of models, the perfect-foresight competitive equilibrium coincides with the optimal growth path of a social planning problem, so that equilibrium indeterminacy will not arise in those models. However, the majority of endogenous growth models assume the presence of technological spillover and external effects to sustain continuing growth in the absence of exogenous technical change.

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Vorheriges Kapitel Indeterminacy in Real Business Cycle Models

Nächstes Kapitel Growth Models with Multiple Steady States

Well known examples include Jones and Manuelli (1990), King et al. (1988b) and Rebelo (1991).

Milesi-Ferretti and Roubini (1998) point out that the formulation of leisure activity may affect policy outcomes in endogenous growth model. Our discussion consider the same issue in the context of equilibrium (in)determinacy.

An early study on this type of model is King et al. (1988b). Bond et al. (1996) and Mino (1996) analyze the local uniqueness and stability of equilibrium of the model, while Ladrón-de-Guevara et al. (1997) explore its global stability.

The presence of positive profits means that fixed costs should be present to prevent entry, unless the number of firms is fixed. In this sense, we must assume some type of increasing returns in the private technology even when the social technologies satisfy constant returns to scale.

If we follow Ladrón-de-Guevara et al. (1997), in this case, we can demonstrate that uniqueness and stability of equilibrium path hold globally.

For more detailed discussion on the characterization of the transition process of the model with unique equilibrium, see Mino (1996).

The literature on the convergent speed of growing economies usually focused the dynamic systems that involve a one-dimensional stable manifold. In analyzing an exogenous growth model, Eicher and Turnovsky (1999) explored the transition speed of the system in which the stable manifold is two dimensional, that is,having two stable roots. (Their model, however, does not exhibit indeterminacy.) They show that converging speed is highly sensitive to selection of the initial position of the economy.

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Titel: Indeterminacy in Endogenous Growth Models
verfasst von: Kazuo Mino
Verlag: Springer Japan
Buch: Growth and Business Cycles with Equilibrium Indeterminacy
Print ISBN: 978-4-431-55608-4

Electronic ISBN: 978-4-431-55609-1

Copyright-Jahr: 2017
DOI: https://doi.org/10.1007/978-4-431-55609-1_3