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Financial constraints, endogenous markups, and self-fulfilling equilibria

Jess Benhabib () and Pengfei Wang ()

Journal of Monetary Economics, 2013, vol. 60, issue 7, 789-805

Abstract: Self-fulfilling equilibria and indeterminacy can easily arise in a simple financial accelerator model with reasonable parameter calibrations and without increasing returns in production. A key feature for generating indeterminacy in our model is the countercyclical markup due to the procyclical loan-to-output ratio. We illustrate, via simulations, that our financial accelerator model can generate rich business cycle dynamics, including hump-shaped output in response to demand shocks as well as autocorrelation in output growth rates.

Keywords: Financial constraints; Endogenous markups; Self-fulfilling equilibria; Indeterminacy (search for similar items in EconPapers)
Date: 2013
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Working Paper: Financial Constraints, Endogenous Markups, and Self-fulfilling Equilibria (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:60:y:2013:i:7:p:789-805

DOI: 10.1016/j.jmoneco.2013.06.004

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