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Frictional Capital Reallocation with Ex Post Heterogeneity

Author

Listed:
  • Randall Wright

    (University of Wisconsin Madison)

  • Sylvia Xiao

    (Peking University)

  • Yu Zhu

    (Bank of Canada)

Abstract

This project studies economies with markets for capital reallocation, where gains from trade are driven by firm-specific productivity shocks, but are hindered by search frictions and liquidity considerations. Results are provided on existence, uniqueness and efficiency. The model is tractable enough to analyze monetary and fiscal policy using simple graphs. Additionally, we calibrate it to investigate quantitatively the effects of changes in productivity and credit conditions. The framework can capture several facts deemed interesting in the literature – e.g., capital misallocation is countercyclical, while its price and reallocation are procyclical. We also discuss how well productivity dispersion measures inefficiencies or frictions. (Copyright: Elsevier)

Suggested Citation

  • Randall Wright & Sylvia Xiao & Yu Zhu, 2020. "Frictional Capital Reallocation with Ex Post Heterogeneity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 227-253, August.
  • Handle: RePEc:red:issued:20-169
    DOI: 10.1016/j.red.2020.06.008
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    More about this item

    Keywords

    Capital; Reallocation; Investment; Frictions; Liquidity;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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