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- Title
EQUILIBRIUM INDETERMINACY, ENDOGENOUS ENTRY AND EXIT, AND INCREASING RETURNS TO SPECIALIZATION.
- Authors
Chen, Shu-Hua; Guo, Jang-Ting
- Abstract
This paper systematically examines the interrelations between equilibrium indeterminacy, endogenous entry and exit of intermediate input firms, and increasing returns to specialization within two versions of a parsimonious one-sector monopolistically competitive RBC model. The technology for producing an intermediate good is postulated to display internal increasing returns to scale in our benchmark framework, whereas positive productive externalities are considered in the alternative setting. We analytically show that either formulation will exhibit belief-driven cyclical fluctuations provided the equilibrium wage-hours locus is positively sloped and steeper than the household's labor supply curve. We also find that ceteris paribus our alternative macroeconomy is more susceptible to indeterminacy and sunspots than the baseline counterpart.
- Subjects
ECONOMIES of scale; RETURNS to scale; LABOR supply; EQUILIBRIUM; APPROPRIATE technology; HOUSEKEEPING
- Publication
Macroeconomic Dynamics, 2022, Vol 26, Issue 7, p1756
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100521000043