Steady state analysis and endogenous fluctuations in a finance constrained model
Abstract
The overlapping generations model, like the one studied by Reichlin (1986) or Cazzavillan (2001), can be interpreted as an optimal growth economy where consumption is totally constrained by capital income. In this paper, we analyze steady states and dynamic properties of an extended version of such framework by considering that only a share of consumption expenditures is constrained by capital income. We notably establish that the steady state is not necessarily unique. Moreover, in contrast to the intuition, consumer welfare can increase at a steady state following a raise of the share of consumption constrained by capital income, i.e. the market imperfection. Concerning dynamics, we show that endogenous fluctuations (indeterminacy and cycles) can emerge depending on two parameters : the elasticity of intertemporal substitution in consumption and the elasticity of capital-labor substitution. Such fluctuations appear when these two parameters take values in accordance with empirical studies and without introducing increasing returns or imperfect competition.Download Info
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Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number v05029.Length: 25 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:mse:wpsorb:v05029
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Keywords: Finance constraint; steady states; indeterminacy; endogenous cycles.;Other versions of this item:
- Thomas Seegmuller, 2005. "Steady state analysis and endogenous fluctuations in a finance constrained model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194358, HAL.
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- 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-2005-05-14 (All new papers)
- NEP-BEC-2005-05-14 (Business Economics)
- NEP-MAC-2005-05-14 (Macroeconomics)
References
References listed on IDEASPlease report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barro, Robert J., 1974.
"Are Government Bonds Net Wealth?,"
Scholarly Articles
3451399, Harvard University Department of Economics.
- Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
- 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.
Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Teresa Lloyd-Braga & Leonor Modesto & Thomas Seegmuller, 2008.
"Tax Rate Variability and Public Spending as Sources of Indeterminacy,"
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers)
halshs-00194395, HAL.
- 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, 06.
- Lloyd-Braga, Teresa & Modesto, Leonor & Seegmuller, Thomas, 2006. "Tax Rate Variability and Public Spending as Sources of Inderterminacy," CEPR Discussion Papers 5796, C.E.P.R. Discussion Papers.
- Thomas Seegmuller, 2005.
"On the Stabilizing Virtues of Imperfect Competition,"
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers)
halshs-00194173, HAL.
- Thomas Seegmuller, 2005. "On the stabilizing virtues of imperfect competition," International Journal of Economic Theory, The International Society for Economic Theory, vol. 1(4), pages 313-323.
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