Multiple Equilibrium, Variability, and the Development Process

Author/Editor:

Luis Carranza ; José Enrique Galdón-Sánchez

Publication Date:

April 1, 1998

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Per capita output is more volatile in middle-income economies than in both low-income and high-income economies. We examine this pattern in a two-period overlapping generations model with two productive sectors (a developed sector and a subsistence sector) and a credit sector. In the early and mature stages of development, there is a unique equilibrium, because labor and credit markets are cleared by a unique set of prices. In the middle stages of development, however, the model shows that markets can be cleared by a multiple set of prices. This multiplicity of equilibria arises as productive externalities are reflected in credit markets.

Series:

Working Paper No. 98/62

English

Publication Date:

April 1, 1998

ISBN/ISSN:

9781451848267/1018-5941

Stock No:

WPIEA0621998

Format:

Paper

Pages:

28

Please address any questions about this title to publications@imf.org