Minimum investment requirement, financial market imperfection and self-fulfilling belief

Tomoo Kikuchi, George Vachadze

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)

Abstract

We develop a model in which a strategic complementarity in saving decisions arises due to a minimum investment requirement and financial market imperfection. We explore the role of self-fulling beliefs in determining the long run dynamics. The model exhibits a wide range of dynamic phenomena such as a poverty trap, a big push and a sunspot equilibrium, depending on the level of financial market imperfection. They account for excessive volatility and a sudden change in the saving rate and its macroeconomic consequences without any shocks to fundamentals.

Original languageEnglish
Pages (from-to)305-332
Number of pages28
JournalJournal of Evolutionary Economics
Volume28
Issue number2
DOIs
Publication statusPublished - 2018 Apr 1
Externally publishedYes

Keywords

  • Financial market imperfection
  • Saving rate
  • Self-fulfilling belief
  • Strategic complementarity
  • Sunspot
  • multiple equilibria

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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