Sunspots and Credit Frictions

Sharon Harrison and Mark Weder

No 2010-02, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

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 parametrizations than in previous, similar models without these features.

Keywords: business cycles; credit markets; collateral constraint; sunspots (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2010-01
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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Journal Article: SUNSPOTS AND CREDIT FRICTIONS (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:adl:wpaper:2010-02

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