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Frictional Capital Reallocation with Ex Post Heterogeneity

Randall Wright (), Sylvia Xiao and Yu Zhu
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Sylvia Xiao: Peking University

Review of Economic Dynamics, 2020, vol. 37 Supplement 1, S227-S253

Abstract: This project studies economies with markets for capital reallocation, where gains from trade are driven by firm-specific productivity shocks, but are hindered by search frictions and liquidity considerations. Results are provided on existence, uniqueness and efficiency. The model is tractable enough to analyze monetary and fiscal policy using simple graphs. Additionally, we calibrate it to investigate quantitatively the effects of changes in productivity and credit conditions. The framework can capture several facts deemed interesting in the literature – e.g., capital misallocation is countercyclical, while its price and reallocation are procyclical. We also discuss how well productivity dispersion measures inefficiencies or frictions. (Copyright: Elsevier)

Keywords: Capital; Reallocation; Investment; Frictions; Liquidity (search for similar items in EconPapers)
JEL-codes: E22 E44 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.red.2020.06.008

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