Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/234930
Authors: 
Hashimoto, Ken-ichi
Im, Ryonghun
Kunieda, Takuma
Shibata, Akihisa
Year of Publication: 
2021
Series/Report no.: 
ISER Discussion Paper No. 1118
Abstract: 
This paper uses a dynamic general equilibrium model to examine whether financial innovations destabilize an economy. Applying a neoclassical production function, we demonstrate that as financial frictions are mitigated, the economy loses stability and a ip bifurcation occurs at a certain level of financial frictions under an empirically plausible elasticity of substitution between capital and labor. Furthermore, the amplitude of fluctuations increases as financial frictions are mitigated and is maximized when the financial market approaches perfection. These outcomes imply that financial innovations are likely to destabilize an economy.
Subjects: 
Financial innovations
endogenous business cycles
nancial destabilization
heterogeneous agents
JEL: 
E13
E32
E44
Document Type: 
Working Paper

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