A Contribution to the Theory of Business Cycles
AbstractAn economy consisting of identical perfectly competitive firms with real liquidity costs and a one-period production lag has a locally unstable stationary equilibrium with complex eigenvalues for a wide range of parameters. Monetary policy aimed at stabilizing real balances can support nonstationary equilibrium paths that converge to a limit cycle, which has Keynesian features. The first welfare theorem does not hold because the price level appears in the production function through liquidity costs, so that production has a positive externality. Copyright 1992, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Bibliographic InfoArticle provided by MIT Press in its journal Quarterly Journal of Economics.
Volume (Year): 107 (1992)
Issue (Month): 3 (August)
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- Shaw, Ming-Fu & Lai, Ching-Chong & Chang, Wen-Ya, 2005. "Anticipated policy and endogenous growth in a small open monetary economy," Journal of International Money and Finance, Elsevier, vol. 24(5), pages 719-743, September.
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- João Faria & Joaquim Andrade, 1998. "Investment, credit, and endogenous cycles," Journal of Economics, Springer, vol. 67(2), pages 135-143, June.
- Chou, Chien-Fu & Talmain, Gabriel, 1996. " Redistribution and Growth: Pareto Improvements," Journal of Economic Growth, Springer, vol. 1(4), pages 505-23, December.
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