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Sunspots And Credit Frictions

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  • Harrison, Sharon G.
  • Weder, Mark

Abstract

We examine a general equilibrium model with collateral constraints and increasing returns to scale in production. The utility function is nonseparable, with no income effect on the consumer¡¯s choice of leisure. Unlike this model without a collateral constraint, we find that indeterminacy of equilibria is possible. Hence, business cycles can be driven by self-fulfilling expectations. This is the case for more realistic parametrizations than in previous, similar models without these features.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 17 (2013)
Issue (Month): 05 (July)
Pages: 1055-1069

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Handle: RePEc:cup:macdyn:v:17:y:2013:i:05:p:1055-1069_00

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  1. Sunspots and Credit Frictions
    by Christian Zimmermann in NEP-DGE blog on 2010-01-25 03:20:38
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Cited by:
  1. NUTAHARA Kengo, 2010. "Asset Prices and Monetary Policy in a Sticky-Price Economy with Financial Frictions," Discussion papers 10060, Research Institute of Economy, Trade and Industry (RIETI).
  2. Costas Azariadis & Leo Kaas, 2012. "Self-fulfilling credit cycles," Working Papers 2012-047, Federal Reserve Bank of St. Louis.

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