This paper studies an environment in which information aggregation interacts with investment decisions. The first contribution of the paper is to develop a tractable model of such interactions. The second contribution is to solve the model in closed form and derive a series of implications that...

In this paper, we argue that shocks that affect the private agents' ability to borrow are precisely the type of shocks that can push the economy in a liquidity trap. We show that, when preferences display prudence, these shocks tend to make consumers more cautious, leading both to lower levels...

This paper explores the role of the financial sector in facilitating the flow of funds from borrowers to lenders. Unlike in traditional models of banking, the role of financial firms in our model is not to raise funds from lenders (depositors) and use them to make loans to borrowers. Rather...