Economics at your fingertips  

Liquidity and Economic Fluctuations

Filippo Taddei

No 138, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: This paper shows that private information may be crucial in explaining the relationship between liquidity, investment and economic fluctuations. First, it defines liquidity in a way that is clearly connected to investment and output. Second, it models economies where privately informed entrepreneurs issue debt to fund their investment opportunities and identifies a theoretically based, empirically usable, and macroeconomic relevant measure of liquidity of the economy: the cross-firm dispersion in debt yields. Finally, it rationalizes one novel stylized fact regarding the US corporate bond market: the positive relationship between the proposed meaure of liquidity - the cross-firm dispersion in the "yields to maturity" on newly issued publicly traded debt - and subsequent aggregate economic activity.

Keywords: Liquidity; private information; robust pooling equilibrium; bond yield (search for similar items in EconPapers)
JEL-codes: E2 E3 G14 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2010
New Economics Papers: this item is included in nep-bec, nep-cba, nep-cta and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Carlo Alberto Notebooks from Collegio Carlo Alberto Contact information at EDIRC.
Bibliographic data for series maintained by Giovanni Bert ().

Page updated 2023-01-03
Handle: RePEc:cca:wpaper:138