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Capital reallocation: A tale of two frictions*
Author(s) -
Wang Wei
Publication year - 2021
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12263
Subject(s) - economics , shock (circulatory) , capital (architecture) , monetary economics , productivity , cost of capital , aggregate (composite) , financial capital , physical capital , capital intensity , macroeconomics , microeconomics , human capital , market economy , medicine , profit (economics) , materials science , archaeology , composite material , history
This paper explores the role of search and financial frictions in the used capital market. A tractable dynamic general equilibrium model with both frictions is developed to account for procyclicality of reallocation and the price of used capital. Both the aggregate productivity shock and the financial shock can generate procyclical reallocation of used capital. Quantitatively, the financial shock accounts for almost all the variation of used capital reallocation. The aggregate productivity shock is more responsible for the variation of the price of used capital as well as variables outside the used capital market.