FINANCIAL MARKET IMPERFECTIONS AND IRREGULAR GROWTH CYCLES

In this paper we analyze the generation of endogenous growth and irregular fluctuations in a simple New Keynesian model whose background assumptions are borrowed from a class of asymmetric information models popularized by Greenwald and Stiglitz. We extend the framework put forward by Greenwald and stiglitz taking explicitly into account technological progress as the engine of growth. We show how irregular endogenous fluctuations can arise around an endogenous trend: the traditional view of fluctuations as ‘short run’ phenomena must be abandoned in favour of models of fluctuating growth.