Expectation Driven Business Cycles with Limited Enforcement

Karl Walentin

No 229, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: We explore the implications of shocks to expected future productivity. In a setting with limited enforcement of financial contracts, firms have to post collateral to obtain external finance. In a real one-sector model with this type of "collateral constraint", positive news about future productivity implies an increase in stock prices, as well as the other properties of an expectation-driven business cycle. Furthermore, these properties are obtained with standard consumption preferences and capital adjustment costs.

Keywords: business cycles; news shocks; limited enforcement; stock prices (search for similar items in EconPapers)
JEL-codes: E22 E32 E44 E51 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2009-04-01, Revised 2011-10-01
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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Citations: View citations in EconPapers (8)

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Journal Article: Expectation driven business cycles with limited enforcement (2014)
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