Financial Market Imperfections and Business Cycles
Because of financial market imperfections, such as those generated by asymmetric information in financial markets, whic h lead to breakdowns in markets, like that for equity, in which risks are shared, firms act in a risk-averse manner. The resulting macroeconom ic model accounts for many widely observed aspects of actual business cycles: (1) cyclical movements in real product wages; (2) cyclical patterns of output and investment including inventories; (3) sensitivity of the economy to small perturbations; and (4) persisten ce. More downward flexibility in wages and prices may exacerbate the pli ght of an economy that is in a deep recession. Copyright 1993, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Volume (Year): 108 (1993)
Issue (Month): 1 (February)
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- Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
- Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 651-66, November.
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