Dynamic effects of government expenditure in a finance constrained economy

This paper introduces constant government expenditure in Woodford's finance constrained model (J. Econ. Theory, 1986) with capital-labor substitution as presented in Grandmont, Pintus and de Vilder (J. Econ. Theory, 1998) and investigates how government expenditure influences local dynamics near multiple steady states, depending upon the elasticity of substitution between capital and labor in production. (c) 2005 Elsevier Inc. All rights reserved.