Endogenous fluctutations: a financial transmission Mechanism

Jean-Philippe Garnier ()
Additional contact information
Jean-Philippe Garnier: EQUIPPE - Economie Quantitative, Intégration, Politiques Publiques et Econométrie - Université de Lille, Sciences et Technologies - Université de Lille, Sciences Humaines et Sociales - PRES Université Lille Nord de France - Université de Lille, Droit et Santé

Working Papers from HAL

Abstract: We propose to study the dynamic impact of adjustment costs in capital on the two sectors model with positive sector specific externalities. We proove that such costs are able to lead to endogenous fluctuations by financial transmission mechanism. Indeed, since adjustments costs are linked to the marginal Q of Tobin, the firm's investment decision depends on the gap between the true value of the assets of this firm and their market value. The marginal Q of Tobin is an indicator of this market value and when adjustment costs are sufficiently high they can interplay with sector-specific externalities to provide endogenous fluctuations. We can prove fluctuations and cycle arise for new configurations of capital intensity across sectors. Classically, in this model, these fluctuations take place with sufficiently high level of sector-specific externalities but only with capital intensity reversal across sector. When adjustment costs are considered, reversal is no longer necessary condition to endogenous fluctuations to arise. Moreover, we show that there exists a link between financial volatility, mesured by variations of the marginal Q of Tobin, and fluctuations.

Keywords: Two-sector growth model; externality; adjustment costs; endogenous luctuations (search for similar items in EconPapers)
Date: 2014
Note: View the original document on HAL open archive server: https://hal.univ-lille.fr/hal-01006946
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hal.univ-lille.fr/hal-01006946/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-01006946

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().