Asset Illiquidity and Market Shutdowns in Competitive Equilibrium
AbstractThis paper introduces asymmetric information into a competitive asset market in a dynamic general-equilibrium model with borrowing constraints. In the presence of borrowing constraints, asset sales become a crucial means for agents to finance opportunities to invest in new assets. In this environment, reduced asset sales due to asymmetric information lower the economic growth rate if agents invest in new assets. The volume of asset trade, however, becomes zero if and only if agents stop investing in new assets because of sufficiently low aggregate productivity. A low economic growth rate in this case is solely due to low aggregate productivity without any role of the market shutdown. (Copyright: Elsevier)
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Bibliographic InfoArticle provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 15 (2012)
Issue (Month): 3 (July)
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Find related papers by JEL classification:
- F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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