Search Frictions in Physical Capital Markets as a Propagation Mechanism

André Kurmann and Nicolas Petrosky-Nadeau

Cahiers de recherche from CIRPEE

Abstract: We build a Dynamic General Equilibrium model with search frictions for the allocation of physical capital and investigate its implications for the business cycle. While the model is in principle capable of generating substantial internal propagation to small exogenous shocks, the quantitative effects are modest once we calibrate the model to fit firm-level capital flows. We then extend the model with credit market frictions that lead to countercyclical default and countercyclical risk premia as in the data. Countercyclical default directly affects capital reallocation and has important general equilibrium income effects on labor supply. Yet, for calibrations in line with observed consumption dynamics, we find that even in this extended model, search frictions in physical capital markets play only a small role for business cycle fluctuations.

Keywords: Capital allocation frictions; search and matching; credit frictions; business cycles; dynamic general equilibrium (search for similar items in EconPapers)
JEL-codes: E22 E32 E44 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
http://www.cirpee.org/fileadmin/documents/Cahiers_2007/CIRPEE07-12.pdf (application/pdf)

Related works:
Working Paper: Credit Market Frictions with Costly Capital Reallocation as a Propagation Mechanism (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:0712

Access Statistics for this paper

More papers in Cahiers de recherche from CIRPEE Contact information at EDIRC.
Bibliographic data for series maintained by Manuel Paradis ().