Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 229: Expectation Driven Business Cycles with Limited Enforcement
Karl Walentin ()
Additional contact information
Karl Walentin: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Abstract: We explore the implications of shocks to expected future productivity. In a setting with limited enforcement of financial contracts, firms have to post collateral to obtain external finance. In a real one-sector model with this type of "collateral constraint", positive news about future productivity implies an increase in stock prices, as well as the other properties of an expectation-driven business cycle. Furthermore, these properties are obtained with standard consumption preferences and capital adjustment costs.
Keywords: business cycles; news shocks; limited enforcement; stock prices
26 pages, First version: April 1, 2009. Revised: October 1, 2011.
Full text files
wp229_updated_Oct2011.pdf
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