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Sunspots and the Business Cycle in a Finance Constrained Economy

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  • Barinci, Jean-Paul
  • Cheron, Arnaud

Abstract

This paper examines the cyclical properties of a finance constrained economy populated by two classes of households with heterogeneous preferences and featuring social increasing returns-to-scale. The model exhibits indeterminacy for externalities mild enough so that the labor demand curve is downward sloping. Furthermore, simulation results show that endogenous fluctuations driven by expectations are quantitatively relevant.
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  • Barinci, Jean-Paul & Cheron, Arnaud, 2001. "Sunspots and the Business Cycle in a Finance Constrained Economy," Journal of Economic Theory, Elsevier, vol. 97(1), pages 30-49, March.
    • Handle: RePEc:eee:jetheo:v:97:y:2001:i:1:p:30-49
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    Cited by:

    1. Modesto, Leonor & Lloyd-Braga, Teresa & Dufourt, Frédéric, 2005. "Indeterminacy and Unemployment Fluctuations with Constant Returns to Scale in Production," CEPR Discussion Papers 4874, C.E.P.R. Discussion Papers.
    2. Teresa Lloyd‐Braga & Leonor Modesto & Thomas Seegmuller, 2008. "Tax Rate Variability and Public Spending as Sources of Indeterminacy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(3), pages 399-421, June.
    3. Marta Aloi & Teresa Lloyd-Braga, 2010. "National labor markets, international factor mobility and macroeconomic instability," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(3), pages 431-456, June.
    4. Thomas Seegmuller, 2005. "Steady state analysis and endogenous fluctuations in a finance constrained model," Cahiers de la Maison des Sciences Economiques v05029, Université Panthéon-Sorbonne (Paris 1).
    5. Lloyd-Braga, Teresa & Modesto, Leonor & Seegmuller, Thomas, 2014. "Market distortions and local indeterminacy: A general approach," Journal of Economic Theory, Elsevier, vol. 151(C), pages 216-247.
    6. Tarek Coury & Yi Wen, 2009. "Global indeterminacy in locally determinate real business cycle models," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(1), pages 49-60, March.
    7. Lloyd-Braga, Teresa & Modesto, Leonor, 2007. "Indeterminacy in a finance constrained unionized economy," Journal of Mathematical Economics, Elsevier, vol. 43(3-4), pages 347-364, April.
    8. Dos Santos Ferreira, Rodolphe & Lloyd-Braga, Teresa, 2008. "Business cycles with free entry ruled by animal spirits," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3502-3519, November.
    9. Agliari, Anna & Vachadze, George, 2014. "Credit market imperfection, labor supply complementarity, and output volatility," Economic Modelling, Elsevier, vol. 38(C), pages 45-56.
    10. Christian Myohl & Yannic Stucki, 2018. "Confidence and the Financial Accelerator," Diskussionsschriften dp1823, Universitaet Bern, Departement Volkswirtschaft.
    11. Fernandez, Esther & Novales, Alfonso & Ruiz, Jesus, 2004. "Indeterminacy under non-separability of public consumption and leisure in the utility function," Economic Modelling, Elsevier, vol. 21(3), pages 409-428, May.
    12. Modesto, Leonor & Lloyd-Braga, Teresa & Coimbra, Rui, 2002. "Endogenous Growth Fluctuations in Unionised Economy with Productive Externalities," CEPR Discussion Papers 3230, C.E.P.R. Discussion Papers.
    13. Jean‐Michel Grandmont, 2008. "Negishi–Solow efficiency wages, unemployment insurance and dynamic deterministic indeterminacy," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(2), pages 247-272, June.
    14. Tarek Coury & Yi Wen, 2007. "Global indeterminacy in locally determinate RBC models," Working Papers 2007-029, Federal Reserve Bank of St. Louis.
    15. Wilson, Matthew S., 2020. "A real business cycle model with money as a sunspot variable," Journal of Economics and Business, Elsevier, vol. 109(C).
    16. Nakajima, Tomoyuki, 2006. "Unemployment and indeterminacy," Journal of Economic Theory, Elsevier, vol. 126(1), pages 314-327, January.
    17. Fernández, Esther & Pérez, Rafaela & Ruiz, Jesús, 2012. "The environmental Kuznets curve and equilibrium indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 36(11), pages 1700-1717.
    18. Jaimovich, Nir, 2007. "Firm dynamics and markup variations: Implications for sunspot equilibria and endogenous economic fluctuations," Journal of Economic Theory, Elsevier, vol. 137(1), pages 300-325, November.
    19. Barinci, Jean-Paul & Chéron, Arnaud & Langot, Francois, 2006. "Liquidity Constraints, Heterogeneous Households And Sunspot Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 10(4), pages 529-544, September.
    20. Xue, Jianpo & Yip, Chong K., 2014. "Factor substitution and taxation in a finance constrained economy," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 101-112.
    21. Gokan, Yoichi, 2008. "Alternative government financing and aggregate fluctuations driven by self-fulfilling expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1650-1679, May.
    22. Barinci, Jean-Paul & Chéron, Arnaud, 2001. "Real business cycles and the animal spirits hypothesis in a CIA economy," CEPREMAP Working Papers (Couverture Orange) 0110, CEPREMAP.
    23. Gokan, Yoichi, 2006. "Dynamic effects of government expenditure in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 127(1), pages 323-333, March.
    24. Nakajima, Tomoyuki, 2006. "Unemployment and indeterminacy," Journal of Economic Theory, Elsevier, vol. 126(1), pages 314-327, January.
    25. Gokan, Yoichi, 2013. "Indeterminacy, labor and capital income taxes, and non-linear tax schedules," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 138-149.

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    More about this item

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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