Endogenous Cycles in a Stiglitz Weiss Economy *

  title={Endogenous Cycles in a Stiglitz Weiss Economy *},
  author={Casado del Alisal and Ben-Gurion},
The literature on financial imperfections and business cycles has focused on propagation mechanisms. In this paper we model a pure reversion mechanism, such that the economy may converge to a two-period equilibrium cycle. This mechanism confirms that financial imperfections may have a dramatic amplification effect. Unlike in some related models, contracts are complete. Indexation is not assumed away. The welfare properties of a possible stabilizing policy are analyzed. The model itself is a… CONTINUE READING
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