‘Illiquid lemon markets’ can worsen crises – NBER paper
Authors extend George Akerlof’s Nobel prize-winning work to the macroeconomy
Capital markets with greater information asymmetries are less efficient and can make crises worse, new research finds.
Illiquid lemon markets and the macroeconomy applies the work of George Akerlof on a macro scale. Akerlof famously explored the market for used cars, with sellers struggling to signal whether they owned a high-quality “peach” or low-quality “lemon”.
Authors Aimé Bierdel, Andres Drenik, Juan Herreño and Pablo Ottonello apply this insight to capital markets in their paper
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