Determinacy Through Intertemporal Capital Adjustment Costs

@inproceedings{Herrendorf2003DeterminacyTI,
  title={Determinacy Through Intertemporal Capital Adjustment Costs},
  author={Berthold Herrendorf and Akos Valentinyi},
  year={2003}
}
It is well known that if there are mild sector-specific externalities, then the steady state standard two-sector real business cycle model can become indeterminate and endogenous cycles can arise. We show that this result is not robust to the introduction of standard interte capital adjustment costs, which may accrue when total capital is adjusted or when each capital is adjusted. We find for both forms of adjustment costs that the steady state is determi all empirically plausible parameter… CONTINUE READING
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