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Frictional Capital Reallocation II: Ex Post Heterogeneity

Author

Listed:
  • Randall Wright

    (University of Wisconsin)

  • Xiaolin Xiao

    (Economics Discipline Group)

  • Yu Zhu

    (Bank of Canada)

Abstract

In previous work we studied frictional markets for capital reallocation based on ex ante heterogeneity: similar firms enter the market with different capital stocks. Here we study ex post heterogeneity: firms with similar capital realize different productivity shocks. For different specifications, results are provided on existence, uniqueness, efficiency and the effects of monetary and fiscal policy. We show, e.g., how higher nominal rates can lower or raise investment, and can be desirable, despite hindering reallocation. The model can capture several stylized facts, e.g., misallocation appears countercyclical while capital reallocation and prices are procyclical. We also discuss how productivity dispersion may or may not accurately measure inefficiency and frictions.

Suggested Citation

  • Randall Wright & Xiaolin Xiao & Yu Zhu, 2018. "Frictional Capital Reallocation II: Ex Post Heterogeneity," 2018 Meeting Papers 544, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:544
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    References listed on IDEAS

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    Cited by:

    1. Andrea L. Eisfeldt & Yu Shi, 2018. "Capital Reallocation," NBER Working Papers 25085, National Bureau of Economic Research, Inc.
    2. Guillaume Rocheteau & Lucie Lebeau & Tai-Wei Hu & Younghwan In, 2018. "Gradual Bargaining in Decentralized Asset Markets," Working Papers 181904, University of California-Irvine, Department of Economics.

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