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Kevin M. Murphy, Andrei Shleifer, Robert W. Vishny
NBER Working Paper No. 3014
Issued in June 1989
NBER Program(s): EFG
---- Abstract -----
We describe an economy where a durable good is produced with an
increasing returns to scale technology. Equilibria in this economy take the
form of business cycles in which consumption fluctuates too much and is too
low on average. A 2-sector version of this economy with imperfect credit and
immobile labor also exhibits aggregate business cycles, in which outputs and
labor inputs in different sectors move together. The model is consistent
with a broad range of evidence on economic fluctuations.
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