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The random-lags approach: application to a microfounded model

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  • Bruchez, Pierre-Alain

Abstract

It is well known that a one-dimensional discrete-time model may yield endogenous fluctuations while this is impossible in a one-dimensional continuous-time model. Invernizzi and Medio (1991) recast this time-modeling issue into an aggregation issue. They have proposed a "random-lags approach" as a way of preserving fluctuations while relaxing the discrete-time assumption. The present paper applies this approach to the model of Aghion, Bacchetta and Banerjee (2000), and shows that their result that economies at an intermediate level of financial development may be prone to economic fluctuations continues to hold when the discrete-time assumption is relaxed.

Suggested Citation

  • Bruchez, Pierre-Alain, 2007. "The random-lags approach: application to a microfounded model," MPRA Paper 3543, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:3543
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    References listed on IDEAS

    as
    1. Invernizzi, Sergio & Medio, Alfredo, 1991. "On lags and chaos in economic dynamic models," Journal of Mathematical Economics, Elsevier, vol. 20(6), pages 521-550.
    2. Azariadis, Costas & Smith, Bruce, 1998. "Financial Intermediation and Regime Switching in Business Cycles," American Economic Review, American Economic Association, vol. 88(3), pages 516-536, June.
    3. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    continuous time; discrete time; fluctuations; aggregation;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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