We explore the link between wealth inequality and output fluctuations in a general two-sector neoclassical growth model with endogenous labor and heterogeneous agents. When agents have homogeneous CRRA preferences and individual wealth is Pareto distributed, a sufficiently large rise in the Gini index typically leads to an increase in endogenous fluctuations of output. For general economies, we show that under plausible conditions on the fundamentals, wealth inequality is still a destabilizing factor.

We consider a two-sector overlapping generations model with homothetic preferences. Under standard conditions on technologies, upon large enough values for the share of first period consumption over the wage income, we prove that the dynamic efficiency and local uniqueness of the competitive equilibrium hold. On the contrary, for lower values of the share of first period consumption over the wage income which imply dynamic inefficiency of the steady state, local indeterminacy arises when the elasticity of intertemporal substitution in consumption is large enough.

In this paper, we study the occurrence of local indeterminacy in two-sector monetary economies. We consider a general MIUF model with two alternative timings in monetary payments: the Cash-In-Advance timing, in which the cash available to buy goods is money in the consumers' hands after they leave the bond market but before they enter the goods market, and the Cash-After-the-Market timing, in which agents hold money for transactions after leaving the goods market. We consider three standard specifications of preferences: the additively separable formulation, the Greenwood-Hercovitz-Huffman (GHH) (Greenwood et al., 1988) formulation and the King-Plosser-Rebelo (KPR) (King et al., 1988) formulation. First, we show that for all the three types of preferences, local indeterminacy occurs under the CIA timing with a low enough interest rate elasticity of money demand. Second, we show that with the CAM timing, although determinacy always holds under separable preferences, local indeterminacy can occur with GHH and KPR preferences. We thus prove that compared to aggregate models, two-sector models provide new rooms for local indeterminacy when non-separable standard preferences are considered.

We consider a continuous-time two-sector infinite-horizon model with sector-specific externalities, endogenous labor and a concave homogeneous non-separable utility function. We show that local indeterminacy arises with a low elasticity of intertemporal substitution in consumption provided the wage elasticity of the labor supply and the elasticity of substitution between consumption and leisure are low enough. Such a result cannot hold with additively separable preferences for which local indeterminacy requires a large enough elasticity of intertemporal substitution in consumption.