Capital Reallocation and Liquidity

47 Pages Posted: 26 May 2006

See all articles by Adriano A. Rampini

Adriano A. Rampini

Duke University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Andrea L. Eisfeldt

UCLA Anderson School of Management

Abstract

This paper shows that the amount of capital reallocation between firms is procyclical. In contrast, the benefits to capital reallocation appear countercyclical. We measure the amount of reallocation using data on flows of capital across firms and the benefits to capital reallocation using several measures of the cross sectional dispersion of the productivity of capital. We then study a calibrated model economy where capital reallocation is costly and impute the cost of reallocation. We find that the cost of reallocation needs to be substantially countercyclical to be consistent with the observed joint cyclical properties of reallocation and productivity dispersion.

Keywords: Capital reallocation, Liquidity, Frictions, Business cycle

JEL Classification: E22, E32, E44, G34

Suggested Citation

Rampini, Adriano A. and Eisfeldt, Andrea L., Capital Reallocation and Liquidity. Journal of Monetary Economics, Vol. 53, pp. 369-399, 2006, Available at SSRN: https://ssrn.com/abstract=904402

Adriano A. Rampini (Contact Author)

Duke University ( email )

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+1 919 660-7797 (Phone)
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HOME PAGE: http://faculty.fuqua.duke.edu/~rampini/

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
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Andrea L. Eisfeldt

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://https://sites.google.com/site/andrealeisfeldt/

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