Article ID Journal Published Year Pages File Type
10487981 Journal of Financial Stability 2005 15 Pages PDF
Abstract
This paper studies the implications of imperfect financial contracting for macroeconomic stability in the context of a stochastic dynamic general equilibrium model. We find that the equilibrium growth path might be indeterminate in an economy with financing frictions even if the aggregate production function exhibits constant returns to scale. Self-fulfilling expectations about the future price of capital lead to macroeconomic fluctuations in this economy.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics, Econometrics and Finance (General)
Authors
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