Munich Personal RePEc Archive

The random-lags approach: application to a microfounded model

Bruchez, Pierre-Alain (2007): The random-lags approach: application to a microfounded model.

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It is well known that a one-dimensional discrete-time model may yield endogenous fluctuations while this is impossible in a one-dimensional continuous-time model. Invernizzi and Medio (1991) recast this time-modeling issue into an aggregation issue. They have proposed a "random-lags approach" as a way of preserving fluctuations while relaxing the discrete-time assumption. The present paper applies this approach to the model of Aghion, Bacchetta and Banerjee (2000), and shows that their result that economies at an intermediate level of financial development may be prone to economic fluctuations continues to hold when the discrete-time assumption is relaxed.

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