Self-Fulfilling Prophecies and Business Cycles in a Two-Sector Stochastic Optimal Growth Model

Abstract

The model that has been discussed in Chapter 2 of the dissertation was able to obtain indeterminacy at low levels of increasing returns to scale. However, the way in which indeterminacy was obtained, namely through the channel of the composition of demand, had to rely on a sufficient difference of the degrees of market imperfections on the investment goods and consumption goods markets. Moreover the result was dependent on the assumption of market segmentation and price discrimination.