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Dualism and macroeconomic volatility

Aghion, P.; Bannerjee, A.; Piketty, T.; (1999) Dualism and macroeconomic volatility. Quarterly Journal of Economics , 114 (4) pp. 1359-1397. 10.1162/003355399556296. Green open access

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Abstract

This paper develops a simple macroeconomic model that shows that combining capital market imperfections together with unequal access to investment opportunities across individuals can generate endogenous and permanent fluctuations in aggregate GDP, investment, and interest rates. Reducing inequality of access may be a necessary condition for macroeconomic stabilization. Moreover, countercyclical fiscal policies have a role to play: in our model savings are underutilized in slumps because of the limited debt capacity of potential investors. Therefore, the government should issue public debt during recessions in order to absorb those idle savings and finance investment subsidies or tax cuts for investors.

Type: Article
Title: Dualism and macroeconomic volatility
Open access status: An open access version is available from UCL Discovery
DOI: 10.1162/003355399556296
Publisher version: http://dx.doi.org/10.1162/003355399556296
Language: English
Additional information: © 1999 The MIT Press
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/17683
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