University ofHelsinki, respectively. We are indebted to the

for variety and endogenous fluctuations in a

We would like to thank Cars Hommes, Florian Wagener, seminar participants at the University of Amsterdam, and the participants of the workshop on ‘Skill Needs and Labor Market Dynamics ’ at the Wissenschaftszentrum Berlin für Sozialforschung for helpful discussions. Tuinstra’s research is supported by the Netherlands Organisation for Scientific Research (NWO) under a MaG-Pionier grant. Neugart acknowledges financial support from the German Ministry of Education. Parts of the research were done while Tuinstra was visiting the WZB and when Neugart was visiting CeNDEF. ZITIERWEISE / CITATION Michael Neugart and Jan Tuinstra

1 Multisector optimal growth models 1.1 Some basic facts on one-sector models Consider a standard discrete-time one-sector optimal growth model with inelastic labor supply. Consider the following variables at time t:- Lt: the labor supply which is proportional to population;- Kt: the capital stock;- Yt: the production which is given by a standard neo-classical technology F (kt, Lt) homogeneous of degree one and concave;- Ct: the consumption;- It = Kt+1 −Kt: the net investment;- µKt: the replacement investment with µ ∈ [0, 1] the rate of depreciation of capital. In a closed economy the equilibrium on the good market implies F (Kt, Lt) = Ct + It + µKt ⇔ Kt+1 = F (Kt, Lt) + (1 − µ)Kt − Ct Assuming that population grows at a constant rate n, i.e. Lt+1 = (1+n)Lt, we may rewrite the previous equation in intensive form with kt = Kt/Lt and ct = Ct/Lt: (1 + n)kt+1 = f(kt) + (1 − µ)kt − ct with f (k) = F (k, 1). To simplify the exposition we assume that investment is reversible.1 Assumption 1. f(k) is C2 and such that for any k> 0, f ′(k)> 0, f ′′(k) < 0, f(0) = 0, f ′(0) = + ∞ and f ′(+∞) = 0. We consider the existence of a representative consumer who maximises the discounted sum of utility derived from consumption. His utility function u(c) is given by: Assumption 2. u(c) is C2 and such that for any c> 0, u′(c)> 0, u′′(c) < 0, u(0) = 0, u′(0) = + ∞ and u′(+∞) = 0. The maximisation program is max {ct}+∞t=0 +∞X t=0 δtu(ct) s.t. (1 + n)kt+1 = f(kt) + (1 − µ)kt − ct k0 given (1) 1This assumption does not fundamentaly modify the results.

Recent empirical evidence suggests that product creation is pro-cyclical and it occurs largely within existing …rms. Motivated by these ndings, the current paper investigates the role of intra-…rm product scope choice in a general equilibrium economy with oligopolistic pro-ducers. We show that the multi-product nature of …rms makes the economy signi…cantly more susceptible to sunspot equilibria. The es-timated indeterminate model generates arti…cial business cycles that closely resemble empirically observed uctuations.

policy results when an active Taylor rule is taken. By assuming that inflation expectations are constrained by the evolution of the output gap, we radically modify the implications of policy intervention: endogenous cycles, of various periodicities, and chaotic motion will be observable for reasonable

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