Liquidity Cycles

Matteo Iacoviello and Raoul Minetti

No 676, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: We study an economy where firms face credit constraints tied to the value of their assets and financiers differ in their information on the market for firms' assets. Financiers with poor information on the asset market make mistakes in asset liquidation, hoarding assets during booms and trading them during recessions. We find that asset liquidity and the composition -informed versus uninformed- of firms' financiers breed each other in a cumulative fashion and that their interaction generates cycles in asset values and output

Keywords: Asset Liquidity; Business Fluctuations; Firm Financing (search for similar items in EconPapers)
JEL-codes: E44 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-mac
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