Liquidity and Economic Fluctuations
AbstractThis 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.
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Bibliographic InfoPaper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 138.
Length: 41 pages
Date of creation: 2010
Date of revision:
Liquidity; private information; robust pooling equilibrium; bond yield;
Find related papers by JEL classification:
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-11 (All new papers)
- NEP-BEC-2010-04-11 (Business Economics)
- NEP-CBA-2010-04-11 (Central Banking)
- NEP-CTA-2010-04-11 (Contract Theory & Applications)
- NEP-MAC-2010-04-11 (Macroeconomics)
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- Alberto Martin & Filippo Taddei, 2010.
"International Capital Flows and Credit Market Imperfections: a Tale of Two Frictions,"
Carlo Alberto Notebooks
160, Collegio Carlo Alberto, revised 2011.
- Martin, Alberto & Taddei, Filippo, 2013. "International capital flows and credit market imperfections: A tale of two frictions," Journal of International Economics, Elsevier, vol. 89(2), pages 441-452.
- Alberto Martin & Filippo Taddei, 2010. "International capital flows and credit market imperfections: A tale of two frictions," Economics Working Papers 1245, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 2012.
- Alberto Martin & Filippo Taddei, 2012. "International Capital Flows and Credit Market Imperfections: a Tale of Two Frictions," Working Papers 518, Barcelona Graduate School of Economics.
- Martin, Alberto & Taddei, Filippo, 2010. "International Capital Flows and Credit Market Imperfections: A Tale of Two Frictions," CEPR Discussion Papers 8131, C.E.P.R. Discussion Papers.
- Söderberg, Jonas, 2008. "Do Macroeconomic Variables Forecast Changes in Liquidity? An Out-of-sample Study on the Order-driven Stock Markets in Scandinavia," CAFO Working Papers 2009:10, Centre for Labour Market Policy Research (CAFO), School of Business and Economics, Linnaeus University.
- Bertsch, Christoph, 2013. "A detrimental feedback loop: deleveraging and adverse selection," Working Paper Series 277, Sveriges Riksbank (Central Bank of Sweden).
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