Multiple Equilibrium, Variability, and the Development Process

By Luis Carranza, José Enrique Galdón-Sánchez

April 1, 1998

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Luis Carranza, and José Enrique Galdón-Sánchez. Multiple Equilibrium, Variability, and the Development Process, (USA: International Monetary Fund, 1998) accessed December 22, 2024

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.

Subject: Credit, Labor markets, Self-employment, Technology, Wages

Keywords: Interest rate, Open economy, Production function, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1998/062
Stock No:

WPIEA0621998
ISBN:

9781451848267
ISSN:

1018-5941

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