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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Indeterminacy and Investment Adjustment Costs
Jinill Kim

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 adjustment costs.

Keywords: Indeterminacy, investment adjustment costs, two-sector models

Full paper (82 KB PDF)

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Last update: August 10, 1999