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Consumption Externalities and Equilibrium Dynamics with Heterogenous Agents

Author

Listed:
  • Kazuo Mino

    (Graduate School of Economics, Osaka University)

  • Yasuhiro Nakamoto

    (Graduate School of Economics, Osaka University)

Abstract
This paper explores the effect of consumption externalities on equilibrium dynamics of a standard neoclassical growth model in which there are two types of agents. To emphasize the presence of heterogenous agents, we distinguish intergroup consumption externalities from intragroup consumption externalities. We show that if the intragroup externalities dominates the intrergroup external effects, then the steady state equilibrium satisfies saddle-point stability and the equilibrium path of the economy is uniquely determined. In contrast, if the intergroup external effects of consumption are strong enough, the steady-state equilibrium is either unstable or locally indeterminate. Based on the analytical as well as numerical considerations, we give intuitive implications of stability conditions.

Suggested Citation

  • Kazuo Mino & Yasuhiro Nakamoto, 2008. "Consumption Externalities and Equilibrium Dynamics with Heterogenous Agents," Discussion Papers in Economics and Business 08-30, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:0830
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    References listed on IDEAS

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    Cited by:

    1. Kazuo Mino & Yasuhiro Nakamoto, 2009. "Consumption Externalities and Wealth Distribution in a Neoclassical Growth Model," KIER Working Papers 683, Kyoto University, Institute of Economic Research.
    2. Borissov, Kirill, 2016. "The Rich And The Poor In A Simple Model Of Growth And Distribution," Macroeconomic Dynamics, Cambridge University Press, vol. 20(7), pages 1934-1952, October.
    3. Kazuo MIno & Yasuhiro Nakamoto, 2014. "Conformism and Wealth Distribution," KIER Working Papers 901, Kyoto University, Institute of Economic Research.
    4. Kazuo Mino, 2017. "Sunspot-Driven Business Cycles: An Overview," KIER Working Papers 973, Kyoto University, Institute of Economic Research.
    5. Borissov, Kirill, 2016. "The Rich And The Poor In A Simple Model Of Growth And Distribution," Macroeconomic Dynamics, Cambridge University Press, vol. 20(7), pages 1934-1952, October.
    6. Riham Barbar & Mohanad Ismael, 2020. "Dynamic effects of consumption externalities," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 43(2), pages 725-750, December.
    7. Fujisaki, Seiya, 2016. "Macroeconomic Effect of Consumption Tax on ”Dynamic” and ”Myopic” Agents," MPRA Paper 73500, University Library of Munich, Germany.

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    More about this item

    Keywords

    Consumption externalities; Equilibrium determinacy; Heterogeneous agents; Progressive taxation;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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