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We provide a business cycle model in which endogenous markup fluctuations are the main driving force. These fluctuations occur due to some form of 'animal spirits', impelling firms in their entry-exit decisions within each sector. By contrast to existing models of the business cycle emphasizing the role of animal spirits, we do not rely on the sink property(More)
Existing literature continues to be unable to offer a convincing explanation for the volatility of the stochastic discount factor in real world data. Our work provides such an explanation. We do not rely on frictions, market incompleteness or transactions costs of any kind. Instead, we modify a simple stochastic representative agent model by allowing for(More)
seminar and conference participants at various places for helpful discussions. The usual disclaimer applies. Abstract Firms devote significant resources to maintain and repair their existing capital. Within a real business cycle model featuring arguably small aggregate increasing returns, this paper assesses the stabilizing effects of fiscal policies with a(More)
Free entry equilibria are usually characterized by the zero profit condition. We plead instead for a strict application of the Nash equilibrium concept to a symmetric simultaneous game played by actual and potential entrants, producing under decreasing average cost. Equilibrium is then typically indeterminate, with a number of active firms varying between(More)
We introduce Large Scale Asset Purchases (LSAPs) in a New-Keynesian DSGE model that features distinct mortgage and corporate loan markets. We show that following a significant disruption of financial intermediation, central-bank purchases of mortgage-backed securities (MBS) are uniformly less effective at easing credit market conditions and stabilizing(More)
We analyze sunspot-driven fluctuations in the standard two-sector RBC model with moderate increasing returns to scale and generalized no-income-effect preferences à la Greenwood, Hercovitz and Huffman [13]. We provide a detailed theoretical analysis enabling us to derive relevant bifurcation loci and to characterize the steady-state local stability(More)
Economies with oligopolistic markets are prone to inefficient sunspot fluctuations triggered by autonomous changes in firms equilibrium conjectures. We show that a well designed taxation-subsidization scheme can eliminate these fluctuations by coordinating firms in each sector on a single efficient equilibrium. At the macroeconomic level, implementing this(More)
We study the implications of constant money growth rules on the stability properties of the equilibrium, in economies where agents are subject to a partial cash-in-advance constraint applying simultaneously to consumption and investment purchases. By reference to similar models in which the liquidity constraint applies only to consumption, we show that the(More)
seminar and conference participants at various places for helpful discussions. The usual disclaimer applies. Abstract We analyze how investment subsidies can affect aggregate volatility and growth in economies subject to capital market imperfections. Within a model featuring both frictions on the credit market and unequal access to investment opportunities(More)