Multiple Equilibrium, Variability, and the Development Process

Luis Carranza () and José Galdón-Sánchez

No 1998/062, IMF Working Papers from International Monetary Fund

Abstract: Per capita output is more volatile in middle-income economies than in both low-income and high-income economies. We examine this pattern in a two-period overlapping generations model with two productive sectors (a developed sector and a subsistence sector) and a credit sector. In the early and mature stages of development, there is a unique equilibrium, because labor and credit markets are cleared by a unique set of prices. In the middle stages of development, however, the model shows that markets can be cleared by a multiple set of prices. This multiplicity of equilibria arises as productive externalities are reflected in credit markets.

Keywords: WP; interest rate; open economy; production function (search for similar items in EconPapers)
Pages: 28
Date: 1998-04-01
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Working Paper: Multiple equilibrium, variability and the development process (1997)
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