Sunspots and Credit Frictions
AbstractWe 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 InfoPaper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2010-02.
Length: 21 pages
Date of creation: Jan 2010
Date of revision:
business cycles; credit markets; collateral constraint; sunspots;
Other versions of this item:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-11 (All new papers)
- NEP-BEC-2010-06-11 (Business Economics)
- NEP-CBA-2010-06-11 (Central Banking)
- NEP-DGE-2010-06-11 (Dynamic General Equilibrium)
- NEP-MAC-2010-06-11 (Macroeconomics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
- Costas Azariadis & Leo Kaas, 2012.
"Self-fulfilling credit cycles,"
2012-047, Federal Reserve Bank of St. Louis.
- Costas Azariadis & Leo Kaas, 2012. "Self-Fulfilling Credit Cycles," Working Paper Series of the Department of Economics, University of Konstanz 2012-16, Department of Economics, University of Konstanz.
- Nutahara, Kengo, 2010.
"Asset prices and monetary policy in a sticky-price economy with financial frictions,"
24113, University Library of Munich, Germany.
- 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).
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