INDETERMINACY AND INVESTMENT ADJUSTMENT COSTS: AN ANALYTIC RESULT
It has been widely known that neoclassical growth models with sufficient increasing returns in production may feature indeterminacy. This note analytically shows that investment adjustment costs increase the required degree of increasing returns for indeterminacy to arise. Under empirically plausible levels of investment adjustment costs, we need an implausibly large degree of increasing returns to generate indeterminacy.
Key Words: Indeterminacy; Investment Adjustment Costs.
c1 Comments from the Associate Editor and referee, Jacob Goeree, Bob King, Kevin Lansing, and seminar participants at 1998 SCE conference and various universities are greatly appreciated. All the remaining errors are, of course, mine. Address correspondence to: Jinill Kim, 114 Rouss Hall, Department of Economics, University of Virginia, Charlottesville, VA 22904-4182, USA; e-mail: firstname.lastname@example.org.