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Financial constraints, endogenous markups, and self-fulfilling equilibria

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  • Benhabib, Jess
  • Wang, Pengfei

Abstract

Self-fulfilling equilibria and indeterminacy can easily arise in a simple financial accelerator model with reasonable parameter calibrations and without increasing returns in production. A key feature for generating indeterminacy in our model is the countercyclical markup due to the procyclical loan-to-output ratio. We illustrate, via simulations, that our financial accelerator model can generate rich business cycle dynamics, including hump-shaped output in response to demand shocks as well as autocorrelation in output growth rates.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 60 (2013)
Issue (Month): 7 ()
Pages: 789-805

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Handle: RePEc:eee:moneco:v:60:y:2013:i:7:p:789-805

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Web page: http://www.elsevier.com/locate/inca/505566

Related research

Keywords: Financial constraints; Endogenous markups; Self-fulfilling equilibria; Indeterminacy;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Financial Constraints, Endogenous Markups, and Self-fulfilling Equilibria
    by Christian Zimmermann in NEP-DGE blog on 2012-05-25 20:35:50

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