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Liquidity Cycles

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Author Info

  • Matteo Iacoviello
  • Raoul Minetti

    ()
    (Economics Michigan State University)

Abstract

We study an economy where firms face credit constraints tied to the value of their assets and financiers differ in their information on the market for firms' assets. Financiers with poor information on the asset market make mistakes in asset liquidation, hoarding assets during booms and trading them during recessions. We find that asset liquidity and the composition -informed versus uninformed- of firms' financiers breed each other in a cumulative fashion and that their interaction generates cycles in asset values and output

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File URL: http://repec.org/sed2006/up.1125.1140030897.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 676.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:676

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Keywords: Asset Liquidity; Business Fluctuations; Firm Financing;

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  1. Gary Gorton & Lixin Huang, 2004. "Liquidity, Efficiency, and Bank Bailouts," American Economic Review, American Economic Association, vol. 94(3), pages 455-483, June.
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Cited by:
  1. Agliari Anna & Assenza Tiziana & Delli Gatti Domenico & Santoro Emiliano, 2007. "Credit Cycles in a OLG Economy with Money and Bequest," Money Macro and Finance (MMF) Research Group Conference 2006 103, Money Macro and Finance Research Group.

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