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On Endogenous Business Cycles Under Increasing Returns To Variety And Sector‐Specific Externality

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  • Juin‐Jen Chang
  • Jang‐Ting Guo
  • Wei‐Neng Wang

Abstract

We examine the theoretical as well as quantitative interrelations between endogenous business cycles, increasing returns to product variety and sector‐specific productive externalities within a two‐sector real business cycle model. In a calibrated version of our benchmark closed‐economy setting, the threshold level of investment externalities needed for equilibrium indeterminacy is found to be monotonically increasing in the degree of market competitiveness. We also study the model's local stability properties (i) when the parameters that govern the level of intermediate‐good producers' market power and the strength of variety effects are disentangled; and (ii) in the context of a small open economy. (JEL E30, E32, O41)

Suggested Citation

  • Juin‐Jen Chang & Jang‐Ting Guo & Wei‐Neng Wang, 2021. "On Endogenous Business Cycles Under Increasing Returns To Variety And Sector‐Specific Externality," Economic Inquiry, Western Economic Association International, vol. 59(1), pages 532-548, January.
    • Handle: RePEc:bla:ecinqu:v:59:y:2021:i:1:p:532-548
    DOI: 10.1111/ecin.12910
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    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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