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Abstract

In his paper -Does utility curvature matter for indeterminacy-, Kim 2005 analyzed the relationship among the utility function form, curvature and indeterminacy, concluding that the relationship between curvature and indeterminacy is not robust in neoclassical growth model and the indeterminacy may disappear under the utility specification as in Greenwood et.al 1998. The models he discussed are confined within one sector closed economy. Weder 2001, Meng and Velasco 2004 extend the Benhabib and Farmer 1996 and Benhabib and Nishimura 1998-s closed economy two sector models into open economy, showing that indeterminacy can occur under small external effects, independently of the intertemporal elasticities in consumption. Meng and Velasco 2003 went further, showing the independence between the elasticity of labor supply and indeterminacy in open economy. Under nonseparable utility forms like in King, Plosser and Rebelo 1988, henceforth KPR or Bennett-Farmer 2000 form, do we still have this property? In other words, is the independence between curvature and indeterminacy in small open economy models robust to the specification of the utility functions? In this note, I tackle this issue under two different versions of nonseparable utility functions commonly used in the literature. The answer is -yes- to KPR form but -no- to Bennett-Farmer form. Endogenous time preference and consumable nontradable goods are two elements to deliver this result.



Item Type: MPRA Paper -

Original Title: Does the utility function form matter for indeterminacy in a two sector small open economy?-

Language: English-

Keywords: Indeterminacy, Endogenous time preference-

Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and FinanceE - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles-





Autor: Zhang, Yan

Fuente: https://mpra.ub.uni-muenchen.de/10045/







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