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Endogenous business cycles in a perpetual youth model with financial market imperfections*

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  • Takuma Kunieda
  • Kazuo Nishimura

Abstract

An economy in which entrepreneurs and financiers interact with each other through an imperfect financial market is investigated by applying a dynamic general equilibrium theory. In each period, there is a certain probability of each entrepreneur's life ending, and a certain number of entrepreneurs are newly born. Although entrepreneurs are potential capital producers, they receive an idiosyncratic productivity shock in each period. Therefore, entrepreneurs who draw higher productivity become capital producers and those who draw lower productivity become lenders. Financiers do not have an entrepreneurial talent for capital production, and thus they lend their assets in the financial market to acquire an interest income. In equilibrium, deterministic endogenous business cycles can occur at the intermediate level of financial constraints.

Suggested Citation

  • Takuma Kunieda & Kazuo Nishimura, 2019. "Endogenous business cycles in a perpetual youth model with financial market imperfections*," International Journal of Economic Theory, The International Society for Economic Theory, vol. 15(3), pages 231-248, September.
    • Handle: RePEc:bla:ijethy:v:15:y:2019:i:3:p:231-248
    DOI: 10.1111/ijet.12233
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