Financial Market Imperfections and Business Cycles

Bruce C. Greenwald and Joseph Stiglitz

No 2494, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a simple model of macroeconomic behavior which incorporates the impact of financial market "imperfections," such as those generated by asymmetric information in financial markets. These information asymmetries may lead to breakdowns in markets, like that for equity, in which risks arm shared. In particular, we analyze firm behavior in the presence of equity rationing and imperfect futures markets, in which there are lags in production. Aft a consequence, firms act in a risk-averse manner. We trace out the macroeconomic consequences, and show that they are able to account for many of the widely observed aspects of actual business cycles.

Date: 1988-01
Note: ME
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Citations: View citations in EconPapers (226)

Published as The Quarterly Journal of Economics, Vol. 108, pp. 77-114 (February 1993).

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Journal Article: Financial Market Imperfections and Business Cycles (1993)
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