Working Paper

Indeterminacy and investment adjustment costs

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. 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.

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 1998

Number: 1998-38