Dualism and Macroeconomic Volatility

Thomas Piketty, Abhijit Banerjee and Philippe Aghion

Scholarly Articles from Harvard University Department of Economics

Abstract: This paper develops a simple macroeconomic model that shows that combining capital market imperfections together with unequal access to investment opportunities across individuals can generate endogenous and permanent fluctuations in aggregate GDP, investment, and interest rates. Reducing inequality of access may be a necessary condition for macroeconomic stabilization. Moreover, countercyclical fiscal policies have a role to play: in our model savings are underutilized in slumps because of the limited debt capacity of potential investors. Therefore, the government should issue public debt during recessions in order to absorb those idle savings and finance investment subsidies or tax cuts for investors.

Date: 1999
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Published in Quarterly Journal of Economics

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Related works:
Journal Article: Dualism and Macroeconomic Volatility (1999)
Working Paper: Dualism and macroeconomic volatility (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:4554124

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