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Journal of Economic Theory and Econometrics
Journal of the Korean Econometric Society
Capital Reallocation and Liquidity with Search Frictions
Vol.23, No.1, March 2012, 1–29
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Yongjin Kim
(Yonsei University)
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Abstract
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.
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Keywords
capital reallocation, liquidity, investment, asset market, search |
JEL classification codes
E22, E32, E44, J64 |
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