Academic Commons

Articles

Financial Market Imperfections and Business Cycles

Greenwald, Bruce C.; Stiglitz, Joseph E.

Because of financial market imperfections, such as those generated by asymmetric information in financial markets, which lead to breakdowns in markets, like that for equity, in which risks are shared, firms act in a risk-averse manner. The resulting macroeconomic model accounts for many widely observed aspects of actual business cycles: (a) cyclical movements in real product wages, (b) cyclical patterns of output and investment including inventories, (c) sensitivity of the economy to small perturbations, and (d) persistence. More downward flexibility in wages and prices may exacerbate the plight of an economy that is in a deep recession.

Subjects

Files

Also Published In

Title
Quarterly Journal of Economics
DOI
https://doi.org/10.2307/2118496

More About This Work

Academic Units
Business
Published Here
June 20, 2012
Academic Commons provides global access to research and scholarship produced at Columbia University, Barnard College, Teachers College, Union Theological Seminary and Jewish Theological Seminary. Academic Commons is managed by the Columbia University Libraries.