riskless rate. We embed this mechanism in a simple production economy with liquidity constraints and use observable macro data … recurring. As a result, even transitory shocks have persistent effects because, once observed, the shock stays forever in the …

We use a heterogeneous agent model to explain market crashes resulting from an unanticipated deleveraging shock. In a … demand schedule of optimistic investors while pessimistic investors are crowded out. If a deleveraging shock forces … liquidity problem in which the asset price experiences a free fall when no trading is possible. The deleveraging process further …