Asset illiquidity and market shutdowns in competitive equilibrium

Hajime Tomura*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)


This paper introduces asymmetric information in a competitive asset market into a dynamic general-equilibrium model with borrowing constraints. In the presence of borrowing constraints, asset sales become a crucial means for agents to finance opportunities to invest in new assets. In this environment, reduced asset sales due to asymmetric information lower the economic growth rate if agents invest in new assets. The volume of asset trade, however, becomes zero if and only if agents stop investing in new assets because of sufficiently low aggregate productivity. A low economic growth rate with a market shutdown is solely due to low aggregate productivity without any role of the market shutdown.

Original languageEnglish
Pages (from-to)283-294
Number of pages12
JournalReview of Economic Dynamics
Issue number3
Publication statusPublished - 2012 Jul 1
Externally publishedYes


  • Adverse selection
  • Asset price
  • Economic growth
  • Liquidity
  • Market shutdown

ASJC Scopus subject areas

  • Economics and Econometrics


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