Financial constraints, endogenous markups, and self-fulfilling equilibria

Jess Benhabib, Pengfei Wang

    Research output: Contribution to journalArticlepeer-review


    Self-fulfilling equilibria and indeterminacy can easily arise in a simple financial accelerator model with reasonable parameter calibrations and without increasing returns in production. A key feature for generating indeterminacy in our model is the countercyclical markup due to the procyclical loan-to-output ratio. We illustrate, via simulations, that our financial accelerator model can generate rich business cycle dynamics, including hump-shaped output in response to demand shocks as well as autocorrelation in output growth rates.

    Original languageEnglish (US)
    Pages (from-to)789-805
    Number of pages17
    JournalJournal of Monetary Economics
    Issue number7
    StatePublished - Oct 2013


    • Endogenous markups
    • Financial constraints
    • Indeterminacy
    • Self-fulfilling equilibria

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics


    Dive into the research topics of 'Financial constraints, endogenous markups, and self-fulfilling equilibria'. Together they form a unique fingerprint.

    Cite this