Keywords: Indeterminacy, investment adjustment costs, two-sector models
Abstract: It is widely known that a neoclassical growth model with sufficient
increasing returns to production may feature an indeterminate steady
state. This note shows how investment adjustment costs increase the
degree of increasing returns required for indeterminacy to arise.
We also argue that sector-specific externalities are observationally equivalent to negative
Full paper (82 KB PDF)
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Last update: August 10, 1999