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Liquidity constraint, increasing returns and endogenous fluctuations

Stefano Bosi () and Francesco Magris
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Stefano Bosi: EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne

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Abstract: In this paper we show that local indeterminacy, endogenous fluctuations, and periodic and quasi-periodic orbits may emerge in a one-sector infinite-horizon competitive economy where (1) at the end of each period agents must hold a share of their wealth in the form of money and (2) technology exhibits increasing returns to scale. In contrast to other contributions on this subject, we find 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 financial constraint, total returns on investment represent a weighted average of capital marginal productivity and deflation, and the latter is positively related to the rate of growth of capital. © 2000 University of Venice.

Keywords: intertemporal substitution; indeterminacy; Financial constraint (search for similar items in EconPapers)
Date: 2000
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Published in Research in Economics, Elsevier, 2000, 54, pp.385--401. ⟨10.1006/reec.2000.0234⟩

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Journal Article: Liquidity constraint, increasing returns and endogenous fluctuations (2000) Downloads
Working Paper: Liquidity Constraint, Increasing Returns and Endogenous Fluctuations (1999) Downloads
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DOI: 10.1006/reec.2000.0234

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