Munich Personal RePEc Archive

Business Cycles and Financial Crises: A Model of Entrepreneurs and Financiers

Kunieda, Takuma and Shibata, Akihisa (2012): Business Cycles and Financial Crises: A Model of Entrepreneurs and Financiers.

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Abstract

A dynamic general equilibrium model with infinitely lived entrepreneurs and financiers is developed to investigate a possible mechanism that explains business cycles and a financial crisis. The highest growth rate is achievable only if financiers coexist with entrepreneurs, given a certain extent of financial market imperfections. However, if financiers coexist with entrepreneurs, the economy is highly likely to go into a financial crisis for some parameter values. These two-sided implications of the coexistence of entrepreneurs and financiers explain why both instability and high growth are frequently observed in modern economies.

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