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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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number
676.
Length: Date of creation: 03 Dec 2006 Date of revision: Handle: RePEc:red:sed006:676
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