Frictional capital reallocation I: Ex ante heterogeneity
Sylvia Xiaolin Xiao and
Journal of Economic Dynamics and Control, 2018, vol. 89, issue C, 100-116
We study dynamic general equilibrium models where capital is traded in frictional markets featuring liquidity considerations. Gains from trade arise from ex ante heterogeneity: some firms are better at investment, so they build capital in the primary market, while others acquire it in the secondary market. We consider specifications with random search and bargaining, as well as those with directed search and posting, and provide strong results for both on existence, uniqueness, efficiency and comparative statics. Monetary and fiscal policy are discussed in detail. Among other advantages, the framework is tractable enough to analyze using simple diagrams.
Keywords: Capital reallocation; Investment; Liquidity; Monetary and fiscal policy (search for similar items in EconPapers)
JEL-codes: E22 E44 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:89:y:2018:i:c:p:100-116
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