Hangovers

Yong Kim

International Economic Journal, 2012, vol. 26, issue 2, 203-218

Abstract: This paper analyzes a process by which a market boom brought on by a temporary increase in the flow of buyers, can subsequently lead to a collapse of liquidity (speed of sale), prices and production to levels lower than before the onset of the boom. I consider a general model of markets subject to search frictions in the matching of buyers and sellers, where the entry of buyers and sellers (through production) are subject to adjustment costs . The resulting co-movement between unemployment, inventories and sales with the production cycle matches the stylized facts.

Date: 2012
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DOI: 10.1080/10168737.2012.693325

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