Université d'Evry

Indeterminacy and Endogenous Fluctuations with Arbitrary Small Liquidity Constraint

Email address: Stefano.Bosi@eco.univ-evry.fr

Abstract:
In this paper we study the occurrence of local indeterminacy and endogenous fluctuations in a competitive infinite horizon economy with partial cash-in-advance constraint on consumption expenditures. We observe that, in contrast to many one-sector models, indeter-minacy and endogenous fluctuations are quite pervasive phenomena: they arise for arbitrarily small amplitudes of the liquidity constraint and for whatever specification for the preferences and the technol-ogy. This result seems to question the robustness of the saddle path stability of the Ramsey-Cass-Koopmans model - on the other hand in-tensively exploited in the RBC literature - with respect to arbitrarily small imperfections in the financial market. Such findings are confirmed in a context of sustained growth made possible by the presence of positive externalities in aggregate capital.

PDF file of paper: bosi.pdf

Session: Economic Growth

Time: Sunday, 8 July, 8am - 9:30am

Room: E