Market Distortions And Local Indeterminacy: A General Approach
Source: Institute for the Study of Labor
The authors provide a methodology to study the role of market distortions on the emergence of indeterminacy and bifurcations. Most of the specific market imperfections considered in the related literature are particular cases of their framework. Comparing them they obtain several equivalence results in terms of local dynamic properties, highlighting the main channels and classes of distortions responsible for indeterminacy. Their methodology consists in introducing general specifications for the elasticities of the crucial functions defining the aggregate equilibrium dynamics of the model.