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Entrepreneurs, Financiers, And Boom–Bust Cycles

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  • Kunieda, Takuma
  • Shibata, Akihisa

Abstract

In this paper, a dynamic general equilibrium model with infinitely lived entrepreneurs and financiers is developed to investigate a possible mechanism that explains business cycles and financial crises. The highest growth rate is achievable only if financiers coexist with entrepreneurs, given a certain extent of financial market imperfections. However, if financiers coexist with entrepreneurs, the economy is highly likely to face a financial crisis at certain parameter values. These two-sided implications of the coexistence of entrepreneurs and financiers explain why both instability and high growth are frequently observed in modern economies. Furthermore, our model can obtain countercyclical movements in total factor productivity growth that cannot be explained by the standard real business cycle theory but were observed in the Great Recession of 2007–2008.

Suggested Citation

  • Kunieda, Takuma & Shibata, Akihisa, 2017. "Entrepreneurs, Financiers, And Boom–Bust Cycles," Macroeconomic Dynamics, Cambridge University Press, vol. 21(3), pages 785-816, April.
    • Handle: RePEc:cup:macdyn:v:21:y:2017:i:03:p:785-816_00
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    Cited by:

    1. Takao Asano & Akihisa Shibata & Masanori Yokoo, 2021. "Quasi-Periodic Motions in a Polarized Overlapping Generations Model with Technology Choice," KIER Working Papers 1070, Kyoto University, Institute of Economic Research.
    2. Hashimoto, Ken-ichi & Im, Ryonghun & Kunieda, Takuma & Shibata, Akihisa, 2022. "Financial destabilization," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    3. Takao Asano & Akihisa Shibata & Masanori Yokoo, 2021. "Polarization and Permanent Fluctuations: Quasi-Periodic Motions in a Two-Class OLG Model (Revised version with a new title "Quasi-Periodic Motions in a Polarized Overlapping Generations Model wit," KIER Working Papers 1063, Kyoto University, Institute of Economic Research.

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