Price dynamics, financial fragility and aggregate volatility
Résumé
Within a general equilibrium framework a la Long and Plosser (1983), we investigate the dynamics emerging from the interactions of households and firms that are adaptive price setters and financially constrained. Adaptive price-setting behavior induces micro founded out-of-equilibrium dynamics along which agents become heterogeneous in terms of prices and wealth. The stringency of the financial constraints determine the regime into which the model settles: either an equilibrium one or a disequilibrium one conductive to financial fragility and aggregate volatility. In this setting , we investigate how the structure of the production network a↵ects the emergence of aggregate volatility from micro-level price and financial shocks, hence providing a dynamical counterpart to recent results of Acemoglu and al (2012).
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