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Liquidity constraint, increasing returns and endogenous fluctuations

Author

Listed:
  • Stefano Bosi

    (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

  • Francesco Magris

Abstract

In this paper we show that local indeterminacy, endogenous fluctuations, and periodic and quasi-periodic orbits may emerge in a one-sector infinite-horizon competitive economy where (1) at the end of each period agents must hold a share of their wealth in the form of money and (2) technology exhibits increasing returns to scale. In contrast to other contributions on this subject, we find 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 financial constraint, total returns on investment represent a weighted average of capital marginal productivity and deflation, and the latter is positively related to the rate of growth of capital. © 2000 University of Venice.

Suggested Citation

  • Stefano Bosi & Francesco Magris, 2000. "Liquidity constraint, increasing returns and endogenous fluctuations," Post-Print hal-02878019, HAL.
    • Handle: RePEc:hal:journl:hal-02878019
    DOI: 10.1006/reec.2000.0234
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    References listed on IDEAS

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    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

    intertemporal substitution; Financial constraint; 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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