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Liquidity Constraint, Increasing Returns and Endogenous Fluctuations

Stefano Bosi () and Francesco Magris
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Stefano Bosi: EPEE, University of Evry-Val d’Essonne

No 99-01, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: In this paper we show that local indeterminacy, endogenous ‡uctuations, periodic and quasi-periodic orbits may emerge in a one-sector in…nite-horizon competitive economy where (i) at the end of each period agents must hold a share of their wealth in the form of money and (ii) technology exhibits increasing returns to scale. In contrast to other contributions on this subject, we …nd that such phenomena occur when consumption is intertemporally substitutable and labour is supplied inelastically. The scope for indeterminacy depends basically on the fact that, in view of the …nancial constraint, total returns on investment represent a weighted average of capital marginal productivity and de‡ation, and the latter is positively related to the rate of growth of capital.

Keywords: Financial constraint; Intertemporal substitution; Indeterminacy (search for similar items in EconPapers)
JEL-codes: D90 E32 E50 (search for similar items in EconPapers)
Pages: 25 pages
Date: 1999
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Journal Article: Liquidity constraint, increasing returns and endogenous fluctuations (2000) Downloads
Working Paper: Liquidity constraint, increasing returns and endogenous fluctuations (2000)
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