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

Charles Carlstrom and Timothy Fuerst

American Economic Review, 1997, vol. 87, issue 5, 893-910

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.

Date: 1997
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Software Item: Matlab code for the Carlstrom-Fuerst AER (1997) model (2002)
Working Paper: Agency costs, net worth, and business fluctuations: a computable general equilibrium analysis (1996)
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