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Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis

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  • Carlstrom, Charles T
  • Fuerst, Timothy S

Abstract

This paper develops a computable general equilibrium model in which endogenous agency costs can potentially alter business-cycle dynamics. A principal conclusion is that the agency-cost model replicates the empirical fact that output growth displays positive autocorrelation at short horizons. This hump-shaped output behavior arises because households delay their investment decisions until agency costs are at their lowest--a point in time several periods after the initial shock. Copyright 1997 by American Economic Association.

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  • Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December.
  • Handle: RePEc:aea:aecrev:v:87:y:1997:i:5:p:893-910
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    1. Neil Bennett & David Bloom & Cynthia Miller, 1995. "The influence of nonmarital childbearing on the formation of first marriages," Demography, Springer;Population Association of America (PAA), vol. 32(1), pages 47-62, February.
    2. Elizabeth T. Powers, 1994. "The impact of AFDC on birth decisions and program participation," Working Papers (Old Series) 9408, Federal Reserve Bank of Cleveland.
    3. An, Chong-Bum & Haveman, Robert & Wolfe, Barbara, 1993. "Teen Out-of-Wedlock Births and Welfare Receipt: The Role of Childhood Events and Economic Circumstances," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 195-208, May.
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