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Local determinacy with non-separable utility

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  • Pintus, Patrick A.

Abstract

This paper introduces general formulations for both technology (with input substitution) and non-separable utility (compatible with balanced growth and stationary worked hours) into a benchmark RBC model. It is shown that intertemporal substitution and input substitutability lead to local determinacy and rule out stationary sunspot equilibria when labor demand is downward-sloping, in contrast with recent results obtained under the assumption of separable utility. The main intuition behind this result is shown to work as follows: in contrast with separable preferences, increasing the elasticity of intertemporal substitution in consumption necessarily implies decreasing the elasticity of constant-consumption labor supply, when utility is non-separable and concave, which affects unfavorably the occurrence of local indeterminacy.
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  • Pintus, Patrick A., 2007. "Local determinacy with non-separable utility," Journal of Economic Dynamics and Control, Elsevier, vol. 31(2), pages 669-682, February.
    • Handle: RePEc:eee:dyncon:v:31:y:2007:i:2:p:669-682
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    Cited by:

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    3. Busato, Francesco & Chiarini, Bruno & Marchetti, Enrico, 2011. "Indeterminacy, underground activities and tax evasion," Economic Modelling, Elsevier, vol. 28(3), pages 831-844, May.
    4. Francesco Busato & Enrico Marchetti, 2009. "Skills, sunspots and cycles," Journal of Economics, Springer, vol. 97(3), pages 189-215, July.
    5. Frédéric Dufourt & Kazuo Nishimura & Alain Venditti, 2013. "Indeterminacy and Sunspot Fluctuations in Two-Sector RBC models: Theory and Calibration," AMSE Working Papers 1315, Aix-Marseille School of Economics, France, revised Nov 2009.
    6. Busato, Francesco & Marchetti, Enrico, 2010. "Endogenous skill cycles," Research in Economics, Elsevier, vol. 64(3), pages 175-185, September.
    7. Wong, Tsz-Nga & Yip, Chong K., 2010. "Indeterminacy and the elasticity of substitution in one-sector models," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 623-635, April.
    8. Bosi, Stefano & Nishimura, Kazuo & Venditti, Alain, 2010. "Multiple equilibria in two-sector monetary economies: An interplay between preferences and the timing for money," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 997-1014, November.
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