AGENCY COSTS, NET WORTH, AND BUSINESS FLUCTUATIONS - A COMPUTABLE GENERAL EQUILIBRIUM-ANALYSIS

This paper develops a computable general equilibrium model in which en dogenous agency costs can potentially alter business-cycle dynamics. A principal conclusion is that the agency-cost model replicates the emp irical fact that output growth displays positive autocorrelation at sh ort horizons. This hump-shaped output behavior arises because househol ds delay their investment decisions until agency costs are at their lo west-a point in time several periods after the initial shock.