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Capital reallocation from the perspective of endogenous lemons markets and information cycles

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  • Zhou, Jing

Abstract

Cun (2021) posits information cycles as a new perspective to understand business cycle patterns, and in particular, patterns regarding capital reallocation. In the model of this paper, the degree of information asymmetry on capital quality is endogenously determined and varies with business cycles. The information cycles significantly exacerbate the macroeconomic effects compared to a model where the degree of information asymmetry is constant. This important result provides an alternative explanation for what drives the highly volatile and procyclical nature of capital reallocation. I discuss some qualitative and quantitative implications of this model, as well as potential extensions.

Suggested Citation

  • Zhou, Jing, 2022. "Capital reallocation from the perspective of endogenous lemons markets and information cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 141(C).
    • Handle: RePEc:eee:dyncon:v:141:y:2022:i:c:s0165188922001087
    DOI: 10.1016/j.jedc.2022.104402
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    References listed on IDEAS

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    More about this item

    Keywords

    Information asymmetry; Adverse selection; Capital reallocation; Real business cycle;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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