We study a one-sector growth model where capital investment is credit financed, and there is an adverse selection problem in credit markets. The presence of adverse selection creates an indeterminacy of equilibrium. Many equilibria display permanent fluctuations characterized by transitions between Walrasian regimes and regimes of credit rationing. Cyclical contractions involve declines in real interest rates, increases in credit rationing, and withdrawals of savings from banks. For some configurations of parameters all equilibria display cyclical fluctuations. We provide sufficient conditions for deterministic cycles consisting of m periods of expansion followed by n periods of contraction to exist.

This essay reviews Michel De Vroey’s important new book on the history of macroeconomics, which extends to business cycles an earlier book by the same author on the history of involuntary unemployment. The review also offers a broader nontechnical survey of the issues and models that make up modern macroeconomics, including a reckoning of what we have learned since John Maynard Keynes and of the discoveries that still lie ahead.

Journal Article On the Incidence of Unemployment Get access Costas Azariadis Costas Azariadis Brown University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 43, Issue 1, February 1976, Pages 115–125, https://doi.org/10.2307/2296605 Published: 01 February 1976 Article history Received: 01 December 1973 Accepted: 01 January 1975 Published: 01 February 1976

In an economy without informational and other distortions, entrepreneurs and workers can write labor contracts that support a Pareto optimal allocation of resources. This paper is an attempt to characterize contracts when enterpreneurs are better informed about the state of nature than are their workers. Asymmetric information generally results in a suboptimal allocation of both risk and worker effort; in particular, if consumption and leisure are perfect substitutes, employment will be less than fully Pareto optimal in all but the most favorable states of nature.

This paper studies an industry with demand uncertainty which prompts risk-neutral firms to act both as employers and as insurers of homogeneous, risk-averse laborers. The resulting contractual arrangements turn out, in their simplest form, to be more likely to specify full employment the more of the following conditions prevail: small variability in product price, above-average economy-wide labor demand, highly risk-averse workers, small unemployment compensation, and highly competitive product market. Otherwise, it may be optimal for firms to lay off, by random choice, part of the work force during low states of demand.

Standard one-sector growth models often have the counterfactual implication that economies with access to similar technologies will converge to a common balanced growth path. We propose an elaboration of the Diamond model that permits multiple, locally stable stationary states. This multiplicity is due to increasing social returns to scale in the accumulation of human capital.