Abstract
This paper examines the cyclical properties of a finance constrained economy populated by two classes of households with heterogeneous preferences and featuring social increasing returns-to-scale. The model exhibits indeterminacy for externalities mild enough so that the labor demand curve is downward sloping. Furthermore, simulation results show that endogenous fluctuations driven by expectations are quantitatively relevant. In opposition to standard Real Business Cycles and sunspot models with single-type of households, our finance constrained economy reveals to be able to mimic both an acyclical pattern of the real wage and strong procyclical movements of aggregate consumption. Journal of Economic Literature Classification Numbers: E2, E32.
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