Arbeitspapier
Indeterminacy and multiplicity of equilibria in a two-sector economy with a public-sector production
We introduce government production of both output-augmenting and utility-enhancing public services into an exogenous growth model with a detailed government sector, and calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We show that in contrast to the case without government output, e.g., Vasilev (2009), when the economy features saddle-path stability, the presence of a second sector leads to equilibrium indeterminacy in the model. When public sector production adds to private sector output, the setup exhibits "sink" dynamics, and equilibrium paths are determined by "animal spirits." These results are in line with the findings in the literature, e.g., Benhabib and Farmer (1994, 1996) and Farmer (1999), and have major implications for policy-making and welfare.
- Language
-
Englisch
- Classification
-
Wirtschaft
Business Fluctuations; Cycles
Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
- Subject
-
Equilibrium indeterminacy
animal spirits
two-sector model
government production
- Event
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Geistige Schöpfung
- (who)
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Vasilev, Aleksandar
- Event
-
Veröffentlichung
- (who)
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ZBW – Leibniz Information Centre for Economics
- (where)
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Kiel, Hamburg
- (when)
-
2018
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Vasilev, Aleksandar
- ZBW – Leibniz Information Centre for Economics
Time of origin
- 2018
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