Qinglai Meng

Multiple transitional growth paths in endogenously growing open economies

Abstract This paper extends research in indeterminacy literature to a small open economy, two-sector endogenous growth model. It shows that a continuum of equilibria exist in two situations, (i) the production functions exhibit social constant returns to scale with very small or even negligible externalities; and (ii) the production functions are standard constant returns to scale without externalities but the government implements asymmetric tax policies across sectors.

Monetary policy and multiple equilibria in a cash-in-advance economy

Abstract This article shows that whether active interest rate rules can generate equilibrium uniqueness or indeterminacy depends upon: (1) the magnitude of the intertemporal elasticity of substitution, and (2) the value of the steady state inflation rate. In particular, if the intertemporal elasticity is smaller than one, then an active interest rate rule renders equilibrium indeterminate when the steady state inflation rate is sufficiently high, and ensures uniqueness of equilibrium when it is sufficiently low.

Increasing returns and unsynchronized wage adjustment in sunspot models of the business cycle

A challenge to models of equilibrium indeterminacy based on increasing returns is that required increasing returns for generating indeterminacy can be implausibly large and rise quickly with the relative risk aversion in labor. We show that unsynchronized wage adjustment via a relative wage effect can both lower the required degree of increasing returns for indeterminacy to a plausible level and make it invariant to the relative risk aversion in labor. Consequently, indeterminacy and sunspot-driven fluctuations can emerge for plausible increasing returns regardless of the relative risk aversion in labor. Our model generates reasonable dynamics in terms of matching the business cycle, and sunspot shocks become more important with labor market friction.