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Business Cycles and Financial Crises: A Model of Entrepreneurs and Financiers

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  • Kunieda, Takuma
  • Shibata, Akihisa

Abstract

A dynamic general equilibrium model with infinitely lived entrepreneurs and financiers is developed to investigate a possible mechanism that explains business cycles and a financial crisis. The highest growth rate is achievable only if financiers coexist with entrepreneurs, given a certain extent of financial market imperfections. However, if financiers coexist with entrepreneurs, the economy is highly likely to go into a financial crisis for some parameter values. These two-sided implications of the coexistence of entrepreneurs and financiers explain why both instability and high growth are frequently observed in modern economies.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40310.

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Date of creation: 12 Jul 2012
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Handle: RePEc:pra:mprapa:40310

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Keywords: Endogenous business cycles; Financial crisis; Economic boom; Financial market imperfections;

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