Hostname: page-component-cd9895bd7-q99xh Total loading time: 0 Render date: 2024-12-27T19:53:03.007Z Has data issue: false hasContentIssue false
  • English
  • Français

Animal spirits in cash-in-advance economies*

Published online by Cambridge University Press:  17 August 2016

Stefano Bosi ,
Frédéric Dufourt  and
Francesco Magris
Stefano Bosi*
Affiliation:
EPEE, University of Evry
Frédéric Dufourt
Affiliation:
BETA-theme, University Louis Pasteur
Francesco Magris
Affiliation:
EPEE, University of Evry
*
†EPEE, Département d'économie, Université d'Evry - Val d'Essonne. 4, Bd F. Mitterrand. 91025 Evry Cedex, France. Tel: + 33 1 69 47 70 52. Fax: + 33 1 69 47 70 50. E-mail: [email protected].
Get access

Summary

The possibility of indeterminacy and sunspot fluctuations in dynamic rational expectations models has been often questioned on empirical grounds, for such models are widely believed to rely on implausibly high degrees of increasing returns to scale and/or other controversial calibrations of economic fundamentals. In this paper, we study the occurrence of such phenomena in a standard (one-sector) optimal growth model with endogenous labor supply and a partial cash-in-advance constraint on consumption purchases. We show that, under standard preferences and constant returns to scale in production, indeterminacy typically prevails for an arbitrarily small amplitude of the liquidity constraint. We also analyze the cyclical properties of the model submitted to technological and beliefs disturbances and observe that it performs as well as comparable indeterminate models in the literature.

Résumé

Résumé

La pertinence empirique des modèles avec indétermination de l'équilibre et fluctuations “à taches solaires” a souvent été remise en cause, notamment parce que de tels modèles exigeraient des rendements d'échelle fortement croissants ou des calibrations relativement controversées des fondamentaux de l'économie. Dans cet article, nous étudions l'apparition de tels phénomènes dans un modèle standard de croissance optimale avec offre de travail endogène lorsqu'une contrainte d'encaisses préalables partielle porte sur les dépenses de consommation des ménages. Nous montrons, sous des préférences usuelles et des rendements d'échelle constants, que de tels phénomènes émergent en présence d'une contrainte de liquidité arbitrairement faible. Nous étudions également les propriétés cycliques de cette économie en présence de chocs portant simultanément sur la technologie et les croyances, et analysons nos résultats au regard de modèles comparables proposés dans la littérature.

Keywords

Cash-in-advanceindeterminacybusiness cyclesD90E32E41encaisses préalablesindéterminationcycles économiquesD90E32E41
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 73 , Issue 2 , 2007 , pp. 131 - 151
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2007 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

We are grateful to Guido Cazzavillan, Jean-Michel Grandmont, Marco Maffezzoli and Alain Venditti for very helpful comments and suggestions. We wish to thank participants to SET 2002 and ESEM 2002 in Venice, T2M 2002 in Evry, and Journée DELTA. Any remaining errors are our own.

References

Références

Abel, A.B.. (1985). Dynamic Behavior of Capital Accumulation in a Cash-in-Advance Model. Journal of Monetary Economics 16, 55–71.Google Scholar
Barinci, J.-P., and Chéron, A. (2001). Real Business Cycles and the Animal Spirits Hypothesis in a Cash-in-Advance Economy. Document de Recherche EPEE 01-13;, University of Evry.Google Scholar
Basu, S., and Fernald, J. G. (1997). Returns to Scale in U.S. Production: Estimates and Implications. Journal of Political Economy 105, 249–83.Google Scholar
Becker, R. and Tsyganov, N. (2002). Ramsey Equilibrium in a Two-Sector Model with Heterogeneous Households. Journal of Economic Theory 105, 188–225.Google Scholar
Benhabib, J., and Farmer, R.E.A. (1994). Indeterminacy and Increasing Returns. Journal of Economic Theory 63, 19–41.Google Scholar
Benhabib, J., and Farmer, R.E.A. (1996). Indeterminacy and Sector Specific Externalities. Journal of Monetary Economics 37, 397–419.Google Scholar
Benhabib, J., and Farmer, R.E.A. (1999). Indeterminacy and Sunspots in Macroeconomics. Handbook of Macroeconomics. Taylor and Woodford Eds., Elsevier.Google Scholar
Bennet, R. L., and Farmer, R.E.A. (2000). Indeterminacy with Non-Separable Utility. Journal of Economic Theory 93, 118–43.Google Scholar
Bloise, G., Bosi, S. and Magris, F. (2000). Indeterminacy and Cycles in a Cash-in-Advance Economy with Production. Rivista Internazionale di Scienze Sociali C8 3.Google Scholar
Bosi, S., and Dufourt, F. (2005). Indeterminacy with Constant Money Growth Rules and Income-Based Liquidity Constraints. Document de recherche EPEE 05-22, Université d’Evry.Google Scholar
Bosi, S., and Magris, F. (2003). Indeterminacy and Endogenous Fluctuations with Arbitrarily Small Liquidity Constraint. Research in Economics 57, 39–51.Google Scholar
Burnside, C, Eichenbaum, M., and Rebelo, S.T. (1995). Capacity Utilization and Returns to Scale. In: Bernanke, S., and Rotemberg, J.J. Eds., NBER Macroeconomics Annual 10, 67–110.Google Scholar
Carlstrom, C.T., and Fuerst, T.S. (2003). Money Growth Rules and Price Level Determinacy. Review of Economic Dynamics 6, 263–75.Google Scholar
IIColeman, W.J. (1987). Money, Interest, and Capital. Doctoral Dissertation, University of Chicago.Google Scholar
Cooley, T.F., and Hansen, G.D. (1989). The Inflation Tax in a Real Business Cycle Model. American Economic Review 79, 492–511.Google Scholar
Cooley, T. F. and Prescott, E. C. (1995). Economic Growth and Business Cycles, In: Cooley ed., Frontiers of Business Cycles Research, Princeton University Press, chapter 1.Google Scholar
Dos Santos Ferreira, R. and Dufourt, F. (2006). The Influence of Animal Spirits over Free Entry in the Business Cycle. Journal of Monetary Economics 53, 311–328.Google Scholar
Farmer, R.E.A. (1997). Money in a Real Business Cycle Model. Journal of Money Credit and Banking 29, 568–611.Google Scholar
Farmer, R. and Guo, J. T. (1994). Real Business Cycles and the Animal Spirit Hypothesis. Journal of Economic Theory 63, 42–73.Google Scholar
Gali, J. (1994). Monopolistic Competition, Business Cycles, and the Composition of Aggregate Demand. Journal of Economic Theory 63, 73–96.Google Scholar
Grandmont, J-M., (1988). Nonlinear Difference Equations, Bifurcations and Chaos. CEPREMAP Working Paper, Paris.Google Scholar
Grandmont, J.-M., Pintus, P. and de Vilder, R. (1998). Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles. Journal of Economic Theory 80, 14–59.Google Scholar
Grandmont, J.-M., and Younès, Y. (1972). On the Role of Money and the Existence of a Monetary Equilibrium. Review of Economic Studies 39, 355–72.Google Scholar
Hansen, G., (1985). Indivisible Labor and the Business Cycle. Journal of Monetary Economics 16, 309–27.Google Scholar
King, R.G., Rebelo, S., 1999. Resuscitating Real Business Cycles. In: Taylor, J.B., and Woodford, M. Eds., Handbook of Macroeconomics; North-Holland, Amsterdam; Vol. 1.Google Scholar
Lucas, R.E., and Stokey, N. (1987). Money and Interest in a Cash-in-Advance Economy. Econometrica 55, 491–513.Google Scholar
Morrison, C. J., (1988). Markups in U.S. and Japanese Manufacturing: A Short Run Econometric Analysis. National Bureau of Economic Research Working Paper: 2799.Google Scholar
Perii, R., (1998). Indeterminacy, Home Production and the Business Cycle: A Calibrated Analysis. Journal of Monetary Economics 41, 105–25.Google Scholar
Rogerson, R., 1988. Indivisible Labor, Lotteries and Equilibrium. Journal of Monetary Economics 21, 3–16.Google Scholar
Rotemberg, J., and Woodford, M. (1991). Markups and the Business Cycle. NBER macroeconomics annual, 63–129.Google Scholar
Schmitt-Grohé, S. (2000). Endogenous Business Cycles and the Dynamics of Output, Hours, and Consumption. American Economic Review 90, 1136–1159.Google Scholar
Stockman, A. C, (1981). Anticipated Inflation and the Capital Stock in a Cash-in-Advance Economy. Journal of Monetary Economics 8, 387–93.Google Scholar
Svensson, L. E. O., (1985). Money and Asset Prices in a Cash-in-Advance Economy. Journal of Political Economy 93, 919–44.Google Scholar
Weder, M., (2000). Animal Spirits, Technology Shocks and the Business Cycle. Journal of Economic Dynamics and Control 24, 273–95.Google Scholar
Wen, Y., (1998). Capacity Utilization Under Increasing Returns to Scale. Journal of Economic Theory 81, 7–36.Google Scholar
Woodford, M., (1994). Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy. Economic Theory 4, 345–80.Google Scholar