How I Learned to Stop Worrying and Love Fire Sales

Pablo Kurlat ()

No 24752, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In canonical models with financial constraints, the possibility of fire sales creates a pecuniary externality that results in ex-ante overinvestment. I show that this result is sensitive to the microfoundations for fire sales. If they result from asymmetric information instead of misallocation, the overinvestment result is reversed. Macroprudential policy may therefore need to treat different types of investment differently.

JEL-codes: D62 D82 G14 (search for similar items in EconPapers)
Date: 2018-06
Note: EFG
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