Chen, Kaiji and Song, Zheng (2007): Financial Friction, Capital Reallocation and Expectation-Driven Business Cycles.
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In this paper, we show that news on future technological improvement can trigger an immediate economic expansion in a model with financial friction on capital allocation. The arrivial of good news on future technology reduces such frictions and generates significant increase in current Total Factor Productivity via capital reallocation. This triggers an immediate boom in output, consumption, investment and hours worked. Our empirical evidence using firm-level data supports strongly the above mechanisms for news to affect current aggregate productivity.
|Item Type:||MPRA Paper|
|Original Title:||Financial Friction, Capital Reallocation and Expectation-Driven Business Cycles|
|Keywords:||Financial Friction; Capital Reallocation; Business Cycle|
|Subjects:||G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles
|Depositing User:||Kaiji Chen|
|Date Deposited:||06. Jul 2007|
|Last Modified:||12. Feb 2013 23:20|
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