It has been shown that, in a small open economy with traded and nontraded goods, indeterminacy occurs under constant returns to scale for the social technology with an arbitrarily small degree of externalities. This paper claims that costs of adjusting capital increase the required degree of externalities for indeterminacy to arise. Under empirically plausible levels of adjustment costs and externalities, indeterminacy does not arise in a model with social constant returns.
|Number of pages||14|
|Journal||Journal of Economic Theory and Econometrics|
|Publication status||Published - 2012 Sep|
- Constant Returns to Scale
- Costs of Adjusting Capital
ASJC Scopus subject areas
- Economics and Econometrics