Gaffeo, Edoardo (1999) Financial Markets imperfections, heterogeneity and growth. UNSPECIFIED. (Unpublished)
Abstract
This paper offers a model of growth with heterogeneous agents in which, due to asymmetric information, financial markets do not work properly. In such a world, the Modigliani-Miller theorem fails to hold, a financial hierarchy emerges and ‘how to finance’ the engine of growth – in our case represented by uncertain endeavours in R&D - matters. In turn, heterogeneity means that agents lack sufficient information on the behaviour adopted by the others, forcing them to make use of naive rules in forming expectations and in calculating their probability of bankruptcy. The basic properties of the model are explored via simulations. In particular, it is possible to appreciate how a worsening of financial conditions (e.g. an increase of the contractual interest rate on loans or of the probability of bankruptcy) affects negatively the long-run average rate of growth.
| Item Type: | Departmental Technical Report |
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| Department or Research center: | Economics |
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| Subjects: | H Social Sciences > HG Finance |
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| Uncontrolled Keywords: | Growth - R&D - Heterogeneity - Financial Market Imperfections |
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| Report Number: | 6 |
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| Repository staff approval on: | 14 Jun 2002 |
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