IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-01006946.html
   My bibliography  Save this paper

Endogenous fluctutations: a financial transmission Mechanism

Author

Listed:
  • Jean-Philippe Garnier

    (EQUIPPE - Economie Quantitative, Intégration, Politiques Publiques et Econométrie - Université de Lille, Sciences et Technologies - Université de Lille, Sciences Humaines et Sociales - PRES Université Lille Nord de France - Université de Lille, Droit et Santé)

Abstract

We propose to study the dynamic impact of adjustment costs in capital on the two sectors model with positive sector specific externalities. We proove that such costs are able to lead to endogenous fluctuations by financial transmission mechanism. Indeed, since adjustments costs are linked to the marginal Q of Tobin, the firm's investment decision depends on the gap between the true value of the assets of this firm and their market value. The marginal Q of Tobin is an indicator of this market value and when adjustment costs are sufficiently high they can interplay with sector-specific externalities to provide endogenous fluctuations. We can prove fluctuations and cycle arise for new configurations of capital intensity across sectors. Classically, in this model, these fluctuations take place with sufficiently high level of sector-specific externalities but only with capital intensity reversal across sector. When adjustment costs are considered, reversal is no longer necessary condition to endogenous fluctuations to arise. Moreover, we show that there exists a link between financial volatility, mesured by variations of the marginal Q of Tobin, and fluctuations.

Suggested Citation

  • Jean-Philippe Garnier, 2014. "Endogenous fluctutations: a financial transmission Mechanism," Working Papers hal-01006946, HAL.
    • Handle: RePEc:hal:wpaper:hal-01006946
    Note: View the original document on HAL open archive server: https://hal.univ-lille.fr/hal-01006946
    as

    Download full text from publisher

    File URL: https://hal.univ-lille.fr/hal-01006946/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-681, September.
    2. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
    3. Benhabib, Jess & Farmer, Roger E. A., 1996. "Indeterminacy and sector-specific externalities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 421-443, June.
    4. Alonso-Carrera, Jaime & Caballé, Jordi & Raurich, Xavier, 2008. "Can consumption spillovers be a source of equilibrium indeterminacy?," Journal of Economic Dynamics and Control, Elsevier, vol. 32(9), pages 2883-2902, September.
    5. Bennett, Rosalind L. & Farmer, Roger E. A., 2000. "Indeterminacy with Non-separable Utility," Journal of Economic Theory, Elsevier, vol. 93(1), pages 118-143, July.
    6. Jean-Philippe Garnier, 2014. "Keeping-up with the Joneses, a new source of endogenous fluctuations," Working Papers hal-01006912, HAL.
    7. David Cass, 1965. "Optimum Growth in an Aggregative Model of Capital Accumulation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(3), pages 233-240.
    8. Jess Benhabib & Kazuo Nishimura, 2012. "Indeterminacy and Sunspots with Constant Returns," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 311-346, Springer.
    9. Jean‐Philippe Garnier & Kazuo Nishimura & Alain Venditti, 2007. "Intertemporal substitution in consumption, labor supply elasticity and sunspot fluctuations in continuous‐time models," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(4), pages 235-259, December.
    10. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448, Elsevier.
    11. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-283, April.
    12. Grandmont, Jean-Michel & Pintus, Patrick & de Vilder, Robin, 1998. "Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles," Journal of Economic Theory, Elsevier, vol. 80(1), pages 14-59, May.
    13. Aurélie Mahieux & Lucia Mejia-Dorantes, 2013. "The Impacts of public transport policies on a non mobility area: French study case in the north of France," Working Papers hal-01006684, HAL.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jean-Philippe Garnier, 2012. "Sunspots, cycles and adjustment costs in the two-sectors model," Working Papers hal-00991657, HAL.
    2. Jean-Philippe Garnier, 2013. "Keeping-up with the Joneses, a new source of fluctuations in the two-sector continuous-time models," Working Papers hal-00991664, HAL.
    3. Nishimura, Kazuo & Venditti, Alain, 2010. "Indeterminacy and expectation-driven fluctuations with non-separable preferences," Mathematical Social Sciences, Elsevier, vol. 60(1), pages 46-56, July.
    4. Frédéric Dufourt & Kazuo Nishimura & Alain Venditti, 2013. "Indeterminacy and Sunspot Fluctuations in Two-Sector RBC models: Theory and Calibration," AMSE Working Papers 1315, Aix-Marseille School of Economics, France, revised Nov 2009.
    5. Magris, Francesco, 2012. "Indeterminacy and multiple steady states with sector-specific externalities," Economic Modelling, Elsevier, vol. 29(6), pages 2664-2672.
    6. Herrendorf, Berthold & Valentinyi, Akos, 2006. "On the stability of the two-sector neoclassical growth model with externalities," Journal of Economic Dynamics and Control, Elsevier, vol. 30(8), pages 1339-1361, August.
    7. Frédéric Dufourt & Kazuo Nishimura & Alain Venditti, 2022. "Expectations, self-fulfilling prophecies and the business cycle," Working Papers hal-03923946, HAL.
    8. Frédéric Dufourt & Kazuo Nishimura & Alain Venditti, 2016. "Sunspot fluctuations in two-sector models: New results with additively separable preferences," International Journal of Economic Theory, The International Society for Economic Theory, vol. 12(1), pages 67-83, March.
    9. Guo, Jang-Ting & Harrison, Sharon G., 2001. "Indeterminacy with capital utilization and sector-specific externalities," Economics Letters, Elsevier, vol. 72(3), pages 355-360, September.
    10. Jaimovich, Nir, 2008. "Income effects and indeterminacy in a calibrated one-sector growth model," Journal of Economic Theory, Elsevier, vol. 143(1), pages 610-623, November.
    11. Dufourt, Frédéric & Nishimura, Kazuo & Venditti, Alain, 2015. "Indeterminacy and sunspots in two-sector RBC models with generalized no-income-effect preferences," Journal of Economic Theory, Elsevier, vol. 157(C), pages 1056-1080.
    12. Busato, Francesco & Marchetti, Enrico, 2010. "Endogenous skill cycles," Research in Economics, Elsevier, vol. 64(3), pages 175-185, September.
    13. Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(5), pages 633-664, November.
    14. Tarek Coury & Yi Wen, 2007. "Global indeterminacy in locally determinate RBC models," Working Papers 2007-029, Federal Reserve Bank of St. Louis.
    15. Tarek Coury & Yi Wen, 2009. "Global indeterminacy in locally determinate real business cycle models," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(1), pages 49-60, March.
    16. Maxime Menuet & Alexandru Minea & Patrick Villieu, 2019. "The Peril of Fiscal Rules," Post-Print hal-02314996, HAL.
    17. Sergey Slobodyan, 2004. "One Sector Models, Indeterminacy, and Productive Public Spending," Computing in Economics and Finance 2004 314, Society for Computational Economics.
    18. Jaimovich, Nir, 2007. "Firm dynamics and markup variations: Implications for sunspot equilibria and endogenous economic fluctuations," Journal of Economic Theory, Elsevier, vol. 137(1), pages 300-325, November.
    19. Harrison, Sharon G. & Weder, Mark, 2002. "Tracing externalities as sources of indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 26(5), pages 851-867, May.
    20. Francesco Busato & Enrico Marchetti, 2009. "Skills, sunspots and cycles," Journal of Economics, Springer, vol. 97(3), pages 189-215, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-01006946. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.