TY  - JOUR
AU  - Greenwald,Bruce C.
AU  - Stiglitz,Joseph E.
AU  - Weiss,Andrew
TI  - Informational Imperfections in the Capital Market and Macro-Economic Fluctuations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1335
PY  - 1985
Y2  - 1985
UR  - http://www.nber.org/papers/w1335
L1  - http://www.nber.org/papers/w1335.pdf
N1  - Author contact info:
Bruce C. Greenwald
Columbia University
611 Uris Hall
New York, NY  10027
E-Mail: bg7@columbia.edu

Joseph E. Stiglitz
Uris Hall, Columbia University
3022 Broadway, Room 814
New York, NY  10027
Tel: 212/854-0671
Fax: 212/662-8474
E-Mail: jes322@columbia.edu

Andrew Weiss
Weiss Asset Management
29 Commonwealth Avenue, 10th Floor
Boston, MA 02116
Tel: 617-778-7780
Fax: 617-778-7781
E-Mail: aweiss@weissasset.com
AB  - This paper describes the role that informational imperfections in capital markets are likely to play in business cycles. It then developes a simple illustrative model of the impact of adverse selection in the equity market and the way in which this may lead to large fluctuations in the effective cost of capital in response to relatively small demand shocks.
The model also derives an expression for the cost of equity capital in the presence of adverse selection and provides informational explanations for several widely observed macro-economic phenomena.
ER  -