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Frictional Capital Reallocation I: Ex Ante Heterogeneity

Randall Wright, Sylvia Xiao and Yu Zhu

Staff Working Papers from Bank of Canada

Abstract: This paper studies dynamic general equilibrium models where firms trade capital in frictional markets. Gains from trade arise due to ex ante heterogeneity: some firms are better at investment, so they build capital in the primary market; others acquire it in the secondary market. Cases are considered with random search and bargaining, or directed search and posting. For each, we provide results on existence, uniqueness, efficiency and comparative statics. Monetary and fiscal policy are discussed at length. We also discuss how productivity dispersion can be countercyclical while capital reallocation and its price are procyclical.

Keywords: Monetary; Policy (search for similar items in EconPapers)
JEL-codes: E22 E44 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2019-01
New Economics Papers: this item is included in nep-dge and nep-mac
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Handle: RePEc:bca:bocawp:19-4