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Cost of Business Cycles with Indivisibilities and Liquidity Constraints


  • Imrohoruglu, Ayse


It is almost universally agreed that individuals face incomplete insurance markets and cannot perfectly insure against the idiosyncratic risk. In this paper, simple general equilibrium models with incomplete insurance markets are examined in order to assess the impact of imperfect insurance on the magnitude of the welfare costs of business cycles. Two versions of incomplete insurance markets are considered, and certain statistical properties of the equilibrium stochastic processes in these environments are compared with those of a perfect insurance economy. Copyright 1989 by University of Chicago Press.

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  • Imrohoruglu, Ayse, 1989. "Cost of Business Cycles with Indivisibilities and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1364-1383, December.
  • Handle: RePEc:ucp:jpolec:v:97:y:1989:i:6:p:1364-83

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    References listed on IDEAS

    1. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    2. Dollar, David, 1986. "Technological Innovations, Capital Mobility, and the Product Cycle inNorth-South Trade," American Economic Review, American Economic Association, vol. 76(1), pages 177-190, March.
    3. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    4. Feenstra, Robert C & Judd, Kenneth L, 1982. "Tariffs, Technology Transfer, and Welfare," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1142-1165, December.
    5. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
    6. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-471, June.
    7. Judd, Kenneth L, 1985. "On the Performance of Patents," Econometrica, Econometric Society, vol. 53(3), pages 567-585, May.
    8. Richard Jensen & Marie Thursby, 1987. "A Decision Theoretic Model of Innovation, Technology Transfer, and Trade," Review of Economic Studies, Oxford University Press, vol. 54(4), pages 631-647.
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