Imbalance Effects in the Lucas Model: An Analytical Exploration
CORE Discussion Paper No. 2004/8
16 Pages Posted: 28 Feb 2007
Date Written: April 2004
Abstract
In this note, we use a technique analogous to Xie's method (1994) to solve analytically the Lucas model with externality in a specific parametric case. In particular, we characterize the shape of imbalance effects in this model. Our results are entirely consistent with the findings of the related computational literature. Moreover, our analytical investigation tends to show that these findings are robust to the presence of the Lucas externality as long as a unique equilibrium path exist.
Keywords: imbalance effects, Lucas model, externality, analytical solution
JEL Classification: C61, C62, O41
Suggested Citation: Suggested Citation
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