We develop a model of self-fulfilling default cycles with demand externality a la Dixit- Stiglitz to explain the recurrent clustered defaults observed in the data. The literature reports that observable fundamental factors alone are insufficient to explain the cluster. A decline in aggregate...

We introduce a simple adverse selection problem arising in credit markets into a standard textbook real business cycle model. There is a continuum of households and a continuum of anonymous producers who produce the final goods from intermediate goods. These producers do not have the resources...

In recent years economists have begun to use the techniques of non-linear dynamics to show that some apparently erratic and turbulent economic phenomena reflect subtle underlying patterns. How do cyclic and chaotic dynamics arise in economic models of equilibrium? How can empirical methods be...