Indeterminacy, home production, and the business cycle: A calibrated analysis

In this paper I present a business cycle model with one market sector that produces a standard good, and another that produces a non-market, or home, good. The model can have multiple equilibria, and therefore cycles driven only by self-fulfilling expectations, with low externalities to market production. In particular, an upward sloping aggregate labor demand, as e.g., in Farmer and Guo (J. Economic Theory 63 (1994) 42–72), is not required for indeterminacy. The effect of technology shocks is also studied. In all cases the time series that are generated have properties that are comparable to the real US postwar series.