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An agent-based model of business cycle

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 An agent-based model of business cycle
Abstract

We attempt to construct a simple agent-based model of real and nancial sectors that can
reproduce business cycles. In contrast with neoclassical model of a single good, the rms take
into account the relative price between capital and consumer goods as well as the demand
constraint in deciding how much to invest, and how many workers to employ. Moreover, the
bank endogenously provides money supply. Our articial macro-economy appears to reproduce
business cycles with some properties that are consistent with salient facts: The money supply
and the amount of new orders for capital goods are good leading indicators, and the real wage
rate is weakly correlated with business cycles. Our articial experiment on banking regulations
suggests the eÆcacy of the proposed dynamic provisioning in stabilizing the economy.
Keywords: Macroeconomics, Business Cycle, Money Supply, Agent-based Simulation

1 Introduction
The collapse of Lehman Brothers, which was the serious consequence of the subprime mortgage
crisis, led to plummeting stock markets around the world. This resulted in the worst global reces-
sion in decades. These events alerted us the importance of coherency between nancial market and
real sector, calling for an operational nancial macroeconomic model to elucidate the mechanism of
business cycles. Virtual experiments with such a model can shed lights on regulations on monetary
and banking operations that help stabilize the economy.
The purpose of this paper is two-folded: (1) To construct a simple integrated agent-based model
of real and nancial sectors that can reproduce business cycles1 , (2) to examine the implications
of proposed changes in banking regulation by using the model.
First, our model consists of rms, workers, a shareholder and a bank. The model departs
from real business cycle model with a single good in which price adjustment is fast enough to
clear goods and labor markets so that a rm determines the levels of investment, employment and
output without taking into account (1) the relative price of capital goods to consumer goods, and
(2)the aggregate demand constraint. In contrast, the rms in our model consider the relative price
as well as the constraint in deciding how much to invest, and how many workers to employ. These
decisions by the individual rms determine the economy wide levels of prots, consumption and
other variables, which in turn translates into the magnitude of the aggregate demand. Another
departure is endogenous money supply: the bank decides how much money to supply to the
economy, whereas, in the main stream model, the money supply is exogenously given. This paper
focuses on the cost of capital goods relative to the price of consumer goods as a major determinant
of business cycle uctuations.
First, our articial macro-economy appears to reproduces business cycles: In boom periods,
active investment increases the prots of rms, the income and consumption of households. This
in turn provides favorable market and nancial conditions. However, as investment continues
to grow, the capital good prices and the interest rate rise, thus increasing the cost of investment
while keeping consumer good price relatively constant due to expanded production capacities. This
1 For a pioneering work in dynamic macroeconomic model, see, for example, Kalecki (1954). For a modern
analytical treatment with two sectors, see Hori (1998).

1
gradually increases the cost of investment until it is no longer protable for the rms to invest,
thus triggering a recession. In declining economic periods, the above process is exactly reversed.
Second, the results are consistent with some salient facts: The money supply and the amount of
new orders for capital goods are good leading indicators. The real wage rate is weakly correlated
with business cycles.
Next, we turn our focus on how to stabilize an unstable economy by using this business cycle
model. Specically, we address a question on the criterion on loan loss reserve of banking sector.
According to the current accounting rule, the bank must increase their loss reserve when the
economy becomes slow. Tightened credit discourages investment, further aggravating the economy.
Our articial experiment suggests the eÆcacy of the proposed dynamic provisioning in stabilizing
the economy2 .
The structure of the paper is as follows. Section 2 describes the model and Section 3 presents
and discusses the results of simulations. Section 4 discusses some future extensions and concludes.
2 Model
The time is discrete and indexed by t = 1; 2; : : :. One time period is one month, and one year
has M months. The economy consists of M rms3 producing consumer goods, capital goods
producers, workers in the two industries, shareholders and a bank. Capital goods producers are
perfectly competitive and have identical linearly homogeneous production functions. Thus, they
are represented by a single producer, called a construction company. The company produces
capital goods (referred to as factories) from labor (referred to as carpenters) only, whereas the
rms produce output from labor and capital. For simplicity, let us assume that workers spend all
their income on consumer goods. The single bank serves as a commercial bank as well as a central
bank. All the shareholders are homogeneous: Each has an identical consumption function and
equal share of the stocks of the bank and rms. Therefore, only a single representative shareholder
appears in the model. The shareholder invests only when she creates a rm and does not transact
any outstanding stocks thereafter.
The order of events is as follows. At the beginning of each period, the prices, the wage rates, and
the interest rate are publicly announced. The rms and the shareholder make principal and interest
payments and receive interest incomes. One of the rms decides whether to construct a factory or
not. The rm applies for a loan to the bank if necessary. Upon receiving an order of construction
from the rm, the construction company hires carpenters to build a factory. Every rm, taking its
demand constraint into account, decides on how many workers to put into the production process,
thereby determines its production capacity. The rms and the construction company pay wages
to employees. This determines the incomes of households, thereby consumption demand. This
macro level demand is distributed among the individual rms in proportion to their production
capacities, generating the demand for the individual rm. The rms produce to meet their demand
and receive revenues. The prots of the rms and the bank are determined, from which dividends
to the shareholder are paid at the end of the period. Based on the ratio of aggregate output to
2 The former Comptroller of the Currency, Eugene A. Ludwig suggests that the regulating authority should
consider "dynamic provisioning." Mann and Michael (2002) discuss the pros and cons of dynamic provisioning.
3 Roughly speaking, a doubling of rms and all the initial endowments leads to a doubling of the economy size,
leaving the qualitative results unchanged. Hence, we assume the number of rms and months in a year are the same.

2
production capacity, the price of consumer goods is revised for the next period. Similarly, the
market conditions in labor markets determine the wage rates and the factory price.
The rest of this section describes the model in detail. However, refer to Appendix for some
microeconomic explanations.
2.1 The Behavior of Economic Agents
This subsection describes the behaviors of each agent.
2.1.1 The Construction Company

The construction company builds a factory in response to an order from a rm. In order to
build one unit of factory, the company hires n carpenters for M periods consecutively at the
xed wage rate of contract time, WtC . A rm which makes an order of factory construction must
make full payment in advance to the construction company.4 When It units of factoriesCare under
construction in period t, the number of employed carpenters in period t, denoted by Nt , is
NtC = nIt : (1)
Due to competitiveC bidding, Cthe factory price, P C , is assumed to be driven down to the cost of
production, i.e., Pt = nMWt , implying zero prots for the company in every period.
2.1.2 Firms

The rms are heterogeneous in both size and nancial position. The shareholder provides both
funds and production capacities to create a rm in exchange for the stocks of the rm. We assume
that, once creating a rm, the shareholder does not increase capital of, or lend funds to the rm
directly. Therefore, the investment fund is nanced either by the rm's saving account or a loan
from the bank.
Let Ktj , Ctj , Dtj , and Ljt denote the number of factories, the amounts of checking account, time
saving accounts, and loans outstanding that j jpossesses or owes, respectively. Then, for a given
PtC , j 's equity capital at the end of period t, Et , is computed as
Etj = PtC Ktj + Dtj + Ctj Ljt : (2)
Manurfacturing rm j employs Ntj workers related to production process and N O overhead workers
such as accountants, sales persons, and managers in period t. For simplicity, N O is assumed to be
xed for all t and j .
The rm decides on employment each period while it makes a decision on factory construction
once a year in a sequential order so that rm j decides, at the beginning of j th month every year,
whether to construct one unit of factory or not construct5 . Since it takes a whole year to complete
the construction, production with a new factory will start in j th month next year. We assume
4 Furthermore, we assume that the construction company must keep the full amount of wage payments for the
one year construction period in the factory-specic checking account in order to assure wage payments to carpenters.
The construction company pays the amount of nW tC every month during construction period as the carpenters'
wages from this account.
5 Thus, there is only one rm in each period which makes a construction decision.

3
that the period of duration of a factory is b years and there is no wear-and-tear during this period.
Each rm has the following linearly homogeneous Cobb-Douglas production function:
q = F (K; N ) = AK  N 1  ; (3)
where q, A, and K stand for output, the level of technology and the amount of capital stock (the
number of existing factories). The rm can vary N depending on the volume of demand6 .
2.1.3 Carpenters and Workers

In our model, workers and carpenters are completely passive. They spend all their wage income on
consumption expenditure when employed and consume nothing when unemployed. The aggregate
consumption spending of carpenters and workers in period t, XtW , is
X
XtW = WtC NtC + Wt ( (Ntj + N O ) + N B ); (4)
j

where N B denotes the number of bank employees, which is xed over time.
2.1.4 The Shareholder

The shareholder initially owns K units of factory and G dollars of green bucks, out of which she
invests G0 dollars to establish a bank and deposits the rest, G G0 dollars, on the checking account.
The entire amount of this checking account and K units of factory are then invested to create M
rms.
Her consumption, XtS , is given by
X X
Pt XtS = 0 Pt + 1 ( Divtj + rD DtS ) + 2 ( Etj + EtB + CtS + DtS ); (5)
j j

where Div is the total dividend income, and C S , DS , E j , and E B are the amounts of the checking
account, time saving account, the market values of j's stocks and the bank stocks.
2.1.5 The Bank

The bank makes loans with maturity of one period to rms, and accepts deposits from the share-
holder with the same maturity period. The bank provides checking accounts for them as the means
of settlement. The prot of the bank in each period is paid to the shareholder as dividends.
The liabilities of the bank are the sum of all the checking and time saving accounts, C and D,
respectively. The bank must hold sC  100 percent of C and sD  100 percent of D as reserve
cash, which amounts to R. X X
Rt = sC Ctj + sD Dtj (6)
j j
6 Formally, the production function gives the maximum quantity of output that can be produced by the amounts
of inputs. Here, we interpret that the production function gives the standard level of output with standard capital
q
utilization ratio and work intensity so that, except for t = 0, the rm can produce output beyond the quantity
given by the function by utilizing capital and labor more intensely for a short time of period.

4
 The assets of the bank consists of R and other green bucks, G, and the total outstanding loans,
L, to the rms. The bank's equity capital, EtB , is computed as
X X j X j
EtB = Gt + Rt + Ljt Ct CtS Dt DtS : (7)
j j j

The rate of interest on checkingD accounts is xed at zero. The loan interest rate is rL = r + rSP R
and the deposit interest rate is r = r rSP R , where r is the basic interest rate and rSP R is fee
charged to cover a xed handling cost.
2.2 Behavioral Rules and Dynamics of Prices
This subsection explains major decision rules of the agents and the dynamics of the interest rate,
wages, and prices.
2.2.1 The Rate of Interest

The basic interest rate moves according to the supply and demand of funds. Since loan application
constitutes the demand for funds, and deposit the supply, the monthly change in excess demand
for funds in real term,
t M , can be measured by

tM =
tL (1 s )
t C (1 s )
t D ;
C D
Pt
(8)
where we dene
t X = Xt Xt 1.
The interest rate rises (declines) when there is an excess demand for (supply of) funds. The
expected rate of in ation is formed based on the monthly average of the last one year,
P^ttP^ =
Pt Pt M . By Fisher's equation, the dynamics of the nominal interest rate is
MPt

P^

t+1r = r
t M +
tP+1
^t ; (9)
where r is a parameter that signies how much the interest rate moves in response to the supply-
demand gap.
2.2.2 Investment Decision

Let the t%M -th rm makes a decision on construction in period t. The number of factory units
rm j can construct in period j , denoted by Itj , is either 0 or 1. Since it takes one year (M months)
to complete the construction and the period of duration is b years (bM months), the number of
running factories of rm j in period j , Ktj , is
8 j
< Kt 1 1 if It (b+1)M = 1 and It M = 0
> j j
Ktj = Ktj 1 + 1 if Ijj (b+1)M = 0 and Itj M = 1 (10)
>
: j
Kt 1 otherwise.

5
 We assume that rm j sets periods between j and j + M 1 as the projection horizon in
estimating net prots that can be accrued from the investment7 . Let Pt , Vt, and Wt be the price
of consumer goods, the expected cost of factory8 , and worker's wage rate, respectively. Provided
that the bank approves the loan application, it follows from expected prot maximization9 that
(
1  1  
It = 1 if Pt  A (1 )1  Vt Wt and Ak 1  K + 1
Xj
t % M (11)
0 otherwise.
2.2.3 Decisions on the Level of Employment and Production

The rm determines the level of empolyment based on product demand in the previous period,
Xt 1 , for a given size of production facilities, K . Since wage rate rises sharply when labor demand
approaches to the limit of available labor force, the labor demand coincides with the employment
level.10 The number of employed workers in period t, Nt, is
!
)APt K  1= Xt 1 1=(1 )
   
Nt = min
(1 ;  : (12)
WtC AK

2.2.4 Decisions on Dividend Payments and Operating Funds

Computing principal and interest payments of loans for factories by each vintage is overly compli-
cated without adding insights. Instead, we assume that a rm pays back (b+1)1 M times the amount
of loan outstanding as principal payment, in addition to interest payment. Denoting the quantity
of sales in period t by Xt, the prots before dividend distribution is
t = Pt Xt Costt ; (13)
where Costt = WtC (NtC + N O )+ rtD Dt ( (b+1)1 M + rL)Lt represents the total cost in period t. The
rm keeps  times average monthly expenditure as operational fund in the checking account and
distributes the rest as dividend payment if its equity adequacy ratio exceeds . Thus, dividend
payment, Divt, is 
Divt = max (0; Ct0 Costt ) ifotherwise.
Et > Lt (14)
2.2.5 Determination of Firm's Demand

We assume that aggregate consumption demand is distributed to individual rms in proportion to

their production capacities. Since the aggregate demand for an entire economy, Xt, is given by
Xt = XtW + XtS ; (15)
7 Such an assumption on the time horizon seems to be reasonable since the rm can alter the size of production
capacity one year later while it cannot during the projection horizon.
8 Refer to Appendix for the denition
9 Refer to Appendix for more detail.
10 Refer also to Appendix for more detail.

6
the demand for rm j 's product is
qj
Xtj = P t j Xt : (16)
j qt

2.2.6 Price Dynamics

At the end of each period, quantity

P j demanded for rm j 's product, Xt , is determined. Dene
j

the utilization ratio by Ut = Pj Xqtjt . Since it represents the economy wide demand relative to
j
its production capacities, the ratio serves as a proxy for the excess demand for consumer goods.
Hence, Pt is revised by the following equation:

P + n; n  U < n + 1 if U  1
Pt = Pt 1 n; n  t1 1 < n + 1 if U t 1 < 1: (17)
t 1 Ut 1 t 1

2.2.7 Wage Dynamics

The wage rates for carpenters and workers are revised according to the respective labor market
conditions. Denoting unempoyment rate and natural unemployment rate for carpenters by uCt and
uCN , WtC+1 is determined by

t+1W C =  log uIt +
t+1 P^ : (18)
WtC uIN P^t
Similarly, the wage rate of workers is revised by

t+1W C =  log uCt +
t+1 P^ : (19)
WtC uCN P^t
2.3 Parameter Setting
The following set of parameters are used.
M = 10, a = 100, W0C = 1000, W0 = 500, N O = 20, N B = 10, b = 10, A = 30:0,  = 0:5,
G0 = 5e6, r0 = 0:05, rSP R = 0:02, sD = 0:05, sC = 0:2, 0 = 0:0, 1 = 0:8, 2 = 0:001,
r = 1e 10,  = 2:0,  = 2:0, uIN = 0:03, uCN = 0:03

3 The Resuts
3.1 Business cycle
At the outset of the rst period, the shareholder creates rms with the equal amount of equity
capital. More specically, she provides a xed number of factories and money in checking account
to each rm. However, rms have dierent composition of equity capital because the life duration
of their factories are randomly selected11 .
11 A rm with new factories has a smaller amount of checking account than a rm with old factories.

7
 Figure 1 plots the trends of nominal GDP for 30 random seeds. It shows GDP uctuates over
time with cycle length of approximately 1.8 years. Figure 2 depicts, for a typical case, nominal
GDP, the sum of loans, equity capital, costs and dividend payments over all rms, and the amount
of shareholder's time saving.

9000000
8000000
7000000
6000000
5000000
4000000
3000000 1 18 35 52 69 86 103 120 137 154 171 188 205 222 239 256 273 290
2000000
1000000
0 F-Dpt H-Dpt F-Eq
1 17 33 49 65 81 97 113 129 145 161 177 193 209 225 241 257 273 289 F-Cost (*10) F-Div (*10) GDP

Figure 2: Nominal GDP, Loans, Equity

Figure 1: Nominal GDP in 30 simulations Capital, Costs, Dividends, and Shareholder's
with dierent random seeds Time Savings
In boom periods, both the interest rate and factory price rise steadily so that eventually equa-
tion (26) holds. Then investment is no longer protable, and thus discouraged. This decreased
investment gradually reduces the aggregate consumption demand. Thus the economy turns into
recession. Since the economy wide production capacity adjusts to demand, the price of consumer
goods is fairly stable, while the capital good price moves rapidly. This asymmetric price movement
eventually induces rms to invest by restoring the protability of investment12 .
8 0.5
0.45
6
0.4
4 0.35
0.3
2
0.25
0 0.2
1 19 37 55 73 91 109 127 145 163 181 199 217 235 253 271 289 0.15
-2
0.1
-4 0.05
-6 0
T=0 T=1 T=2 T=3 T=4 T=5 T=6 T=7 T=8 T=9 T=10
GDP MoneySupply(/2-10)

Correl. Coef. of Money Supply(t) and GDP(t+T)

Figure 4: Correlation CoeÆcients between

Figure 3: Nominal GDP and Money Supply GDP and Lagged Money Supply
Due to decreasing labor productivity, neoclassical macroeconomic theory typically predicts a
negative correlation between real wage and output. However, this counter-cyclicality of real wage
has been repeatedly criticized. (See Bils (1985).) Recent studies using microdata reveal substantial
procyclicality of real wage. (See Barsky and Solon (1989), Solon, Barsky and Parker (1994), and
12 Minsky (1986) states \Assuming that the existing stock of capital assets and labor to produce investment, the
supply proce curve of investment will rise after output exceeds some norm. This remark seems consistent with the
asymmetric price movement.

8
Liu (2003).) Our simulation result shows a positive correlation between real wage and output in
the two industries, which is consistent with these ndings. In boom periods, increased investment
raises the carpenters' wage in the capital good industry. Simultaneously, increased investment
raises capital-labor ratio, thereby bidding up workers' real wage through enhanced productivity.
Furthermore, Figure 3 also shows the money supply moves ahead of GDP. This is veried by
Figure 4, which indicates that the correlation coeÆcient of the money supply with the 7 or 8
period lag of GDP is approximately 0.47. This property is natural in our model since, in order to
nance investment, rms induce the bank to expand credit at the beginning of construction. This
result is consistent with a fact that the money supply is a leading indicator. (See Friedman and
Shwartz(1963).)
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
1 18 35 52 69 86 103 120 137 154 171 188 205 222 239 256 273 290
0
GDP Investment T=0 T=1 T=2 T=3 T=4 T=5 T=6 T=7 T=8 T=9 T=10

Correl. Coef. of New Construction(t) and GDP(t+T)

Figure 6: Correlation CoeÆcients between

Figure 5: GDP and New Construction GDP and Lagged New Construction
As Figures 5 and 6 show, our result suggests that new construction moves 6 or 7 periods ahead
of GDP, which is also consistent with the fact that the amount of new orders for capital goods is
a typical leading indicator.
3.2 Banking Regulations
In order to examine how BIS regulation on the bank capital aect the stability of the economy,
we set three dierent scenarios: The standard scenario allows the bank to provide loans until
the total asset reaches ve times the banks equity capital, the procyclical (the counter-cyclical)
scenario allows the bank to have assets up to 35 (15 )million dollars during boom periods, 25
million dollars in normal periods, and 15 (35) million dollars in sluggish periods. In gure 6, the
sums of rms' equity capital are depicted for the standard (Case 1), the procyclical (Case 2) and
the counter-cyclical (Case 3) scenarios, respectively.
Clearly, the counter-cyclical scenario substantially outperforms the other cases, suggesting
counter-cyclical regulation such as the proposed dynamic provision is likely to stabilize the economy.
This is because the bank encourages rms to invest in slow periods and prevents overproduction
in boom periods in counter-cyclical scenario.

9
4 Conclusion
We constructed an agent-based macroeconomic model in which rms, households and a bank
interact with each other. In this economy, the relative price between capital and consumer goods
plays an important role and the money supply is determined endogenously. Our small articial
economy reproduces business cycles and exhibits some features that are consistent with observed
facts. Furthermore, our scenario analysis suggests the eÆcacy of the dynamic provisioning of loan
loss reserve.
We restrict the maximum number of new construction to one, which implicitly determines the
equilibrium amount of capital stock. This should be relaxed to examine the interaction between
the demand constraint and relative price dynamics. In addition, for more relevant investment
decision, we need to introduce the demand price of assets such as factories and stocks. This will
involve a diÆcult task to formulate expectations.   
Firms' Equity

1 19 37 55 73 91 109 127 145 163 181 199 217 235 253 271 289

Case 1 Case 2 Case 3

Figure 7:
A Prot Maximization of Firms
A.1 Decision Making of Investment (Construction)
Before making a decision on construction in period j , rm j needs to estimate the product demand,
the prices of goods and factory and the wage rates between period j + M and period j + 2M 1.
Let X^t, P^t , P^C t、 W^ t be the point estimates of these variables formed at period j . Then, for
t 2 [j + M; j + 2M 1];
X^ t = Xj ; P^t = Pj ; P^tC = PjC ; W
^ t = Wj
The rm selects desirable size of production facilities based on these estimates.
Since the rm is assumed to incur substantial extra costs if it produces in excess of the standard
production capacity over extended periods, it attempts to choose I and N to maximize the following
expected prots over the projection horizon:
E () = Pj min(Xj ; A(K + I ) N 1  ) Wj N Vj I f (K ); (20)
where K and f (K ) respectively stand for the number of existing factories and costs related to
them and other overhead costs that are independent of N and I . The maximization problem in

10
equation (20) is equivalent to
max (P min(Xj ; AK N 1 ) Wj N Vj K );
K;N j
(21)
where K = K + I . Furthermore, it is convenient to decompose the problem of (21) into the cost
minimization and prot maximization problems:
C (q) = min (W N + Vj K ) subject to q  AK N 1 
K;N j
(22)
and
max
q
Pj min(q; Xj ) C (q): (23)
Simple computation gives
C (q) = 
1 V  W 1  q: (24)
A (1 )1  j j
The capital-labor ratio k = K=N depends on input prices and production capacity:
Wj
k= (25)
(1 )Vj :
It directly follows from equation (24) that
Ijj = 0
if 1
Pj <  V W 1 ; (26)
A (1 )1  j j
. If the above condition does not hold, then it is in the rm's interest to increase the production
capacity upto the demand level. Thus, the desirable size of factory is
X
K  = j 1 : (27)
Ak
Privided that the rm can nance the necessary funds, the rm will invest, i.e., Ijj = 1 if
K   K + 1: (28)
A.2 Decision on Employment
Xtj 1is revealed to rm j at the begining of each period for a given Wt , Pt, and K . Assume the
rm has the static one-point estimation, i.e.,
X^t = Xt 1 :
Then, the rm chooses Nt to solve the following problem:
max P min(AK  Nt1  ; Xt 1 ) Wt Nt : (29)
Nt t
A simple computation shows that
!
)APt K  1= Xt 1 1=(1 )
   
Nt = min
(1 ;  (30)
Wt AK

11
 A.3 Finance for Investment
AsC stated above, in order to construct a factory, the rm has to make an advance payment of
P = nMWj dollars to a construction company at the outset of period j . Assume that the rm
borrows the entire amount of investment cost from the bank for (b +1) years through the duration
period at rjL and that equal payment method is applied13 . Then, the monthly payment Vt is given
by
Vt = PtC  rtL  (1 + rtL )(b+1)M =((1 + rtL )(b+1)M 1): (31)
The rm uses money in the time saving account rst and then applies for loans of the remaining
amount to nance an investment project satisfying equation (28). Thus, the rm will apply for
loans of P C Dj dollars. If this is approved, the construction will start.
To assess the loan application, the bank ensures that the capital adequacy ratio of both the
loan applicant and the bank exceed the threshold values Æ and ÆB . The bank will approve the
application if the following two conditions are met:
Etj  ÆLjt + PtC Ctj Dtj ; (32)
and X
EtB  ÆB (Lj + PtC Ctj Dtj ): (33)
j

References
1. Barsky, Robert B. and Gary Solon (1989) \Real Wages over the Business Cycle" NBER
Working Paper No. 2886.
2. Bils, Mark J (1985) \Real Wages over the Business Cycle: Evidence from Panel Data,"
Journal of Political Economy, Vol. 93, No. 4, pp. 666-689.

3. Friedman, Milton and Shwartz, Anna J. (1963) A Monetary History of the United States，
1867-1969, Princeton University Press.

4. Hori, Hajime. (1998) \A Hicksian two-sector model of unemployment, cycles, and growth"
Journal of Economic Dynamics and Control, Vol. 22, pp.369-399.

5. Kalecki, Theory of Economic Dyanamics, Unwin universiy Books, 1954

6. Liu, Haoming (2003) \A cross-country Comparison of the cyclicality of real wages," Canadian
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7. Minsky, Hyman P. (1986) Stabilizing an Unstable Economy, Yale University Press

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13 A rm can use its own money in the time deposit account. However, it will forego not only the deposit interest
r
rate but also iquidity. Hence, we assume the opportunity cost is the same L regardless of where the funds come
from.

12

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