Collaterals and Growth Cycles with Heterogeneous Agents

Stefano Bosi (1) , Mohanad Ismaël (2) , Alain Venditti (3, 4)

1 EPEE - Centre d'Etudes des Politiques Economiques
2 University of Birzeit
3 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
4 EDHEC Business School

We investigate the effects of collaterals and monetary policy on growth rate dynamics in a Ramsey economy where agents have heterogeneous discount factors. We focus on the existence of business-cycle fluctuations based on self-fulfilling prophecies and on the occurrence of deterministic cycles through bifurcations. We introduce liquidity constraints in segmented markets where impatient (poor) agents without collaterals have limited access to credit. We find that an expansionary monetary policy may promote economic growth while making endogenous fluctuations more likely. Conversely, a regulation reinforcing the role of collaterals and reducing the financial market imperfections may enhance the economic growth and stabilize the economy.

Keywords: endogenous fluctuations; stabilization policies; collaterals; heterogeneous agents; balanced growth

Domains: Economics and Finance

Stefano Bosi, Mohanad Ismaël, Alain Venditti. Collaterals and Growth Cycles with Heterogeneous Agents. 2014. ⟨halshs-01059577⟩