Incomplete Market Dynamics in a Neoclassical Production Economy / George-Marios Angeletos, Laurent-Emmanuel Calvet.

Format:

Book

Author/Creator:

Angeletos, George-Marios.

Contributor:

National Bureau of Economic Research.

Calvet, Laurent-Emmanuel.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11016.

NBER working paper series no. w11016

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

We investigate a neoclassical economy with heterogeneous agents, convex technologies and idiosyncratic production risk. Combined with precautionary savings, investment risk generates rich effects that do not arise in the presence of pure endowment risk. Under a finite horizon, multiple growth paths and endogenous fluctuations can exist even when agents are very patient. In infinite-horizon economies, multiple steady states may arise from the endogeneity of risktaking and interest rates instead of the usual wealth effects. Depending on the economy's parameters, the local dynamics around a steady state are locally unique, totally unstable or locally undetermined, and the equilibrium path can be attracted to a limit cycle. The model generates closed-form expressions for the equilibrium dynamics and easily extends to a variety of environments, including heterogeneous capital types and multiple sectors.

Notes:

Print version record

December 2004.