Description
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.