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. 2001 Academic Press

Key Words: indeterminacy; sunspots; business cycles.

``The indeterminacy of equilibrium is not a problem to be avoided by

clever assumptions; it is a fact that can be exploited to explain the world.''

(Farmer [17], p. 605)