Endogenous growth (Economics) - Mathematical models
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AbstractWe investigate the effects of collateral and monetary policy on economic growth within a
Ramsey equilibrium model where agents have different discount factors. Introducing liquidity constraints in segmented markets where (poor) impatient agents without collateral have limited access to credit, we study their implications in terms of welfare and business cycles (based on deterministic cycles through bifurcations and self-fulfilling prophecies). We find that an accommodative monetary policy may be growth-enhancing and welfare improving (through the inequality reduction) while making unpleasant fluctuations more likely. Conversely, a regulation reinforcing the role of collateral and tempering the financial market imperfections may stimulate the economic growth while pursuing the goal of stabilization.