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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- Gary Gorton & Lixin Huang, 2002.
"Liquidity, Efficiency and Bank Bailouts,"
Center for Financial Institutions Working Papers
02-33, Wharton School Center for Financial Institutions, University of Pennsylvania.
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