Illiquid Lemon Markets and the Macroeconomy / Aimé Bierdel, Andres Drenik, Juan Herreño, Pablo Ottonello.

Format:

Book

Author/Creator:

Bierdel, Aimé.

Contributor:

National Bureau of Economic Research.

Drenik, Andres.

Herreño, Juan.

Ottonello, Pablo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w31711.

NBER working paper series no. w31711

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

We study the macroeconomic implications of asymmetric information in capital markets. We build a quantitative capital-accumulation model in which capital is traded in illiquid markets, with sellers having more information about capital quality than buyers. Asymmetric information distorts the terms of trade for sellers of high-quality capital, who list higher prices and are willing to accept lower trading probabilities to signal their type. Led by the model's predictions, we measure the distortions from asymmetric information by studying the relationship between listed prices and trading probabilities in a unique dataset of individual capital units listed for trade. By combining the empirical measurement with the model, we show that information asymmetries can play a quantitatively large role during economic crises when the degree of asymmetric information deteriorates.

Notes:

Print version record

September 2023.