Liquitity Constraints, Heterogeneous Households and Sunspots Fluctuations

Jean-Paul Barinci (), Arnaud Cheron and Francois Langot
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Jean-Paul Barinci: EPEE - Université d’Evry Val d’Essonne and EUREQua - Université Paris 1

No 02-17, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: This paper is concerned with the empirical relevance of indeterminacy and sunspots in explaining the business cycle. It argues that limited borrowing opportunities provide a propagation mechanism able to generate business cycle facts observed in data in response to sunspot shocks. This point is demonstrated using an equilibrium business cycle model featuring heterogeneous households, endogenous labor supply and liquidity constraints. We first show that, due to a complementarity between individual labor supplies, the model exhibits indeterminacy for roughly constant returns to scale. We then establish that our model accounts for stylized facts that neither the standard RBC model nor previous sunspots models have been able to capture. More specifically, the model driven by sunspots alone matches the procyclical movements in aggregate consumption, and the positively correlated forecastable changes of basic macroeconomic variables.

Keywords: Heterogeneity; liquidity constraints; sunspots; increasing returns (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2002
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Related works:
Journal Article: LIQUIDITY CONSTRAINTS, HETEROGENEOUS HOUSEHOLDS AND SUNSPOT FLUCTUATIONS (2006)
Working Paper: Liquidity Constraints, Heterogeneous Households and Sunspots Fluctuations (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:eve:wpaper:02-17

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