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A Note On Indeterminacy And Investment Adjustment Costs In An Endogenously Growing Small Open Economy

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  • Chin, Chi-Ting
  • Guo, Jang-Ting
  • Lai, Ching-Chong

Abstract

This note analytically examines the interrelations between macroeconomic (in)stability and investment adjustment costs in a one-sector endogenously growing small–open economy representative-agent model. We show that under costly capital accumulation, the economy exhibits indeterminacy and sunspots if and only if the equilibrium wage–hours locus slopes upward and is steeper than the household's labor supply curve. By contrast, the economy without adjustment costs for capital investment always displays saddlepath stability and equilibrium uniqueness, regardless of the degree of increasing returns inaggregate production.

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  • Chin, Chi-Ting & Guo, Jang-Ting & Lai, Ching-Chong, 2012. "A Note On Indeterminacy And Investment Adjustment Costs In An Endogenously Growing Small Open Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 16(S3), pages 438-450, November.
    • Handle: RePEc:cup:macdyn:v:16:y:2012:i:s3:p:438-450_00
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    Cited by:

    1. Been-Lon Chen & Yunfang Hu & Kazuo Mino, 2018. "Does Nonlinear Taxation Stabilize Small Open Economies?," KIER Working Papers 997, Kyoto University, Institute of Economic Research.
    2. He, Zhaochen, 2019. "Fear itself: How risk sensitive firms can give demand shocks bite," Economic Modelling, Elsevier, vol. 82(C), pages 437-452.
    3. Been-Lon Chen & Yunfang Hu & Kazuo Mino, 2016. "Stabilization Effects of Taxation Rules in Small-Open Economies with Endogenous Growth," KIER Working Papers 946, Kyoto University, Institute of Economic Research.
    4. Chen, Shu-Hua, 2015. "Macroeconomic (In)Stability Of Interest Rate Rules In A Model With Banking System And Reserve Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 19(7), pages 1476-1508, October.

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