Increasing Returns, Durables and Economic Fluctuations

44 Pages Posted: 3 Oct 2007 Last revised: 28 Sep 2010

See all articles by Kevin M. Murphy

Kevin M. Murphy

University of Chicago; National Bureau of Economic Research (NBER)

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Robert W. Vishny

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: June 1989

Abstract

We describe an economy where a durable good is produced with an increasing returns to scale technology. Equilibria in this economy take the form of business cycles in which consumption fluctuates too much and is too low on average. A 2-sector version of this economy with imperfect credit and immobile labor also exhibits aggregate business cycles, in which outputs and labor inputs in different sectors move together. The model is consistent with a broad range of evidence on economic fluctuations.

Suggested Citation

Murphy, Kevin M. and Shleifer, Andrei and Vishny, Robert W., Increasing Returns, Durables and Economic Fluctuations (June 1989). NBER Working Paper No. w3014. Available at SSRN: https://ssrn.com/abstract=463460

Kevin M. Murphy (Contact Author)

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Andrei Shleifer

Harvard University - Department of Economics ( email )

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European Corporate Governance Institute (ECGI)

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Robert W. Vishny

University of Chicago - Booth School of Business ( email )

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United States
312-702-2522 (Phone)
312-702-0118 (Fax)

National Bureau of Economic Research (NBER)

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