Dufourt

Publications

Indeterminacy with constant money growth rules and income-based liquidity constraintsJournal articleStefano Bosi et Frédéric Dufourt, Research in Economics, Volume 62, Issue 2, pp. 57-63, 2008

We study the implications of constant money growth rules on the stability properties of the equilibrium, in economies where the agents are subject to a partial cash-in-advance constraint applying simultaneously to consumption and investment purchases. By reference to similar models in which the liquidity constraint applies only to consumption, we show that the inclusion of investment has dramatic, but contrasting, effects on the range of values giving rise to indeterminacy. First, it increases strongly a lower bound on the share of purchases requiring cash, below which the steady state is always indeterminate. Second, it creates a higher bound on this share, above which the steady state is always determinate. In this context, the steady-state value of the velocity of money becomes a crucial parameter for gauging whether constant money growth rules may be stabilizing or destabilizing for the economy.

Indeterminacy, Bifurcations, and Unemployment FluctuationsJournal articleFrédéric Dufourt, Teresa Lloyd-Braga et Leonor Modesto, Macroeconomic Dynamics, Volume 12, Issue S1, pp. 75-89, 2008

We incorporate imperfectly insured unemployment in the finance constrained economy proposed by Woodford (1986), by introducing unions and unemployment benefits financed by labor taxation. We show that this simple extension of the Woodford model changes drastically its stability conditions and local dynamics around the steady state. In fact, in contrast to related models in the literature, we find that, under constant returns to scale in production: (i) indeterminacy always prevails in the case of a unitary elasticity of substitution between capital and labor and (ii) flip and Hopf bifurcations occur for empirically credible elasticities of substitution between capital and labor, so that a rich set of dynamics may emerge at “realistic” parameters' values.

Free entry equilibria with positive profits: A unified approach to quantity and price competition gamesJournal articleRodolphe Dos Santos Ferreira et Frédéric Dufourt, International Journal of Economic Theory, Volume 3, Issue 2, pp. 75-94, 2007

Free entry equilibria are usually characterized by the zero profit condition. We plead instead for a strict application of theNash equilibriumconcept to a symmetric simultaneous game played by actual and potential entrants, producing under decreasing average cost. Equilibrium is then typically indeterminate, with a number of active firms varying between an upper bound imposed by profitability and a lower bound required by sustainability. We use a canonical model with strategies represented by prices, although covering standard regimes of quantity and price competition, to show that in equilibrium the critical (profit maximizing) price must lie between the break-even and the limit prices.

Animal spirits in cash-in-advance economiesJournal articleStefano Bosi, Frédéric Dufourt et Francesco Magris, Recherches économiques de Louvain, Volume 73, Issue 2, pp. 131-151, 2007

The possibility of indeterminacy and sunspot fluctuations in dynamic rational expectations models has been often questioned on empirical grounds, for such models are widely believed to rely on implausibly high degrees of increasing returns to scale and/or other controversial calibrations of economic fundamentals. In this paper, we study the occurrence of such phenomena in a standard (one-sector) optimal growth model with endogenous labor supply and a partial cash-in-advance constraint on consumption purchases. We show that, under standard preferences and constant returns to scale in production, indeterminacy typically prevails for an arbitrarily small amplitude of the liquidity constraint. We also analyze the cyclical properties of the model submitted to technological and beliefs disturbances and observe that it performs as well as comparable indeterminate models in the literature. JEL Classification: D90, E32, E41.

Free entry and business cycles under the influence of animal spiritsJournal articleFrédéric Dufourt et Rodolphe Dos Santos Ferreira, Journal of Monetary Economics, Volume 53, Issue 2, pp. 311-328, 2006

We provide a business cycle model in which endogenous markup fluctuations are the main driving force. These fluctuations occur due to some form of 'animal spirits', impelling firms in their entry-exit decisions within each sector. By contrast to existing models of the business cycle emphasizing the role of animal spirits, we do not rely on the sink property of the equilibrium to generate indeterminacy. Hence, while our model does pretty well in accounting for the main features of US business cycles, it avoids several criticisms addressed to these former models, concerning either their dependence upon strongly increasing returns and too high markups, or their implication of countercyclical movements of consumption.

Demand and productivity components of business cycles: Estimates and implicationsJournal articleFrédéric Dufourt, Journal of Monetary Economics, Volume 52, Issue 6, pp. 1089-1105, 2005

Standard stochastic growth models provide theoretical restrictions on output decomposition which can be used to investigate whether productivity shocks played a major role in observed business cycles. Applying these restrictions to US data leads to the following findings: (i) Business cycles implied by productivity shocks are mildly correlated to overall fluctuations and help account for a few episodes of US postwar recessions. However, only 20% of US fluctuations can be explained by these shocks. (ii) Most fluctuations seem instead to be due to “nominal demand” shocks, i.e. shocks which move output and prices in the same direction, but whose effects on output are ultimately transitory. (iii) Canonical sticky price models in the new-neoclassical synthesis tradition can account for the cyclical comovements of output and prices, but canonical, frictionless, RBC models cannot.

Chocs de demande et fluctuations du taux de marge: une évaluation du modèle de collusion impliciteJournal articleFrédéric Dufourt, Recherches économiques de Louvain, Volume 67, Issue 1, pp. 91-112, 2001

Cet article propose une évaluation quantitative du modèle de collusion implicite de Rotemberg et Woodford (1992), en s'appuyant sur une version totalement spécifiée qui permet notamment une détermination analytique de l'élasticité du taux de marge face aux variations de la demande agrégée. Dans ce cadre, on montre qu'un tel mécanisme ne parvient pas à générer des effets réels suffisants pour reproduire un certain nombre de faits stylisés importants associés aux chocs de demande, tels que la réaction procyclique de la production, de l'emploi et du salaire réel. Comparé à des mécanismes concurrents de fluctuations des marges évalués dans un cadre analytique similaire, le mécanisme de collusion implicite semble donc avoir des difficultés à s'imposer à lui seul comme une explication dominante de la transmission des chocs de demande à l'activité économique.