I construct a model of an asset market subject to search frictions, in an environment where both investment and asset liquidity are determined endogenously. This provides a natural framework to analyze the interaction between capital reallocation and liquidity in response to aggregate shocks, which I assess quantitatively. The search model of capital reallocation exhibits strong internal propagation, and can generate substantial changes in factor utilization following aggregate shocks.
|Number of pages||29|
|Journal||Journal of Economic Theory and Econometrics|
|Publication status||Published - 2012 Mar 1|
All Science Journal Classification (ASJC) codes
- Economics and Econometrics