TY  - JOUR
AU  - Angeletos,George-Marios
AU  - Calvet,Laurent-Emmanuel
TI  - Incomplete Market Dynamics in a Neoclassical Production Economy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11016
PY  - 2004
Y2  - December 2004
UR  - http://www.nber.org/papers/w11016
L1  - http://www.nber.org/papers/w11016.pdf
N1  - Author contact info:
George-Marios Angeletos
Department of Economics
MIT E52-251
50 Memorial Drive
Cambridge, MA  02142-1347
Tel: 617/452-3859
Fax: 617/253-1330
E-Mail: angelet@mit.edu

Laurent E. Calvet
Department of Finance
HEC Paris
1 rue de la Libération
78351 Jouy en Josas
France
Tel: +33 13 967 9409
Fax: +33 13 967 7085
E-Mail: calvet@hec.fr
AB  - We investigate a neoclassical economy with heterogeneous agents, convex technologies and idiosyncratic production risk. Combined with precautionary savings, investment risk generates rich effects that do not arise in the presence of pure endowment risk. Under a finite horizon, multiple growth paths and endogenous fluctuations can exist even when agents are very patient. In infinite-horizon economies, multiple steady states may arise from the endogeneity of risktaking and interest rates instead of the usual wealth effects. Depending on the economy's parameters, the local dynamics around a steady state are locally unique, totally unstable or locally undetermined, and the equilibrium path can be attracted to a limit cycle. The model generates closed-form expressions for the equilibrium dynamics and easily extends to a variety of environments, including heterogeneous capital types and multiple sectors.
ER  -