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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: stefano.bosi@univ-evry.fr.
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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 

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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

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