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- Title
SUNSPOTS AND CREDIT FRICTIONS.
- Authors
Harrison, Sharon G.; Weder, Mark
- Abstract
We examine a general equilibrium model with collateral constraints and increasing returns to scale in production. The utility function is nonseparable, with no income effect on the consumer's choice of leisure. Unlike this model without a collateral constraint, we find that indeterminacy of equilibria is possible. Hence, business cycles can be driven by self-fulfilling expectations. This is the case for more realistic parameterizations than in previous, similar models without these features.
- Subjects
SUNSPOTS (Economics); FINANCIAL markets; ECONOMIC equilibrium; BUSINESS cycles; COLLATERAL security; BUSINESS models
- Publication
Macroeconomic Dynamics, 2013, Vol 17, Issue 5, p1055
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100511000836