Financial destabilization

Arbeitspapier

This paper uses a dynamic general equilibrium model to examine whether financial innovations destabilize an economy. Applying a neoclassical production function, we demonstrate that as financial frictions are mitigated, the economy loses stability and a ip bifurcation occurs at a certain level of financial frictions under an empirically plausible elasticity of substitution between capital and labor. Furthermore, the amplitude of fluctuations increases as financial frictions are mitigated and is maximized when the financial market approaches perfection. These outcomes imply that financial innovations are likely to destabilize an economy.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ISER Discussion Paper ; No. 1118

Classification and Topics

• Classification: Wirtschaft ; General Aggregative Models: Neoclassical ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy
• Subject: Financial innovations ; endogenous business cycles ; nancial destabilization ; heterogeneous agents

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hashimoto, Ken-ichi ; Im, Ryonghun ; Kunieda, Takuma ; Shibata, Akihisa
• Event: Veröffentlichung
• (who): Osaka University, Institute of Social and Economic Research (ISER)
• (where): Osaka
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/234930
• Last update: 10.03.2025, 11:43 AM CET