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Liquidity Constraint, Increasing Returns and Endogenous Fluctuations

Author

Listed:
  • Stefano Bosi

    (EPEE, University of Evry-Val d’Essonne)

  • Francesco Magris

    (DAE, University of Cambridge, and DISES, University of Trieste)

Abstract

In this paper we show that local indeterminacy, endogenous ‡uctuations, periodic and quasi-periodic orbits may emerge in a one-sector in…nite-horizon competitive economy where (i) at the end of each period agents must hold a share of their wealth in the form of money and (ii) technology exhibits increasing returns to scale. In contrast to other contributions on this subject, we …nd that such phenomena occur when consumption is intertemporally substitutable and labour is supplied inelastically. The scope for indeterminacy depends basically on the fact that, in view of the …nancial constraint, total returns on investment represent a weighted average of capital marginal productivity and de‡ation, and the latter is positively related to the rate of growth of capital.

Suggested Citation

  • Stefano Bosi & Francesco Magris, 1999. "Liquidity Constraint, Increasing Returns and Endogenous Fluctuations," Documents de recherche 99-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    • Handle: RePEc:eve:wpaper:99-01
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    References listed on IDEAS

    as
    1. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
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    More about this item

    Keywords

    Financial constraint; Intertemporal substitution; Indeterminacy;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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