We show that in a canonical model with heterogeneous entrepreneurs, financial frictions, and an imperfectly elastic supply of capital, a fall in the interest rate has an ambiguous effect on aggregate economic activity. In partial equilibrium, a lower interest rate raises aggregate investment both by relaxing financial constraints and by prompting relatively less productive entrepreneurs to invest. In general equilibrium, however, this higher demand for capital raises its...

How effectively does a decentralized marketplace aggregate information that is dispersed throughout the economy? We study this question in a dynamic setting where sellers have private information that is correlated with an unobservable aggregate state. In any equilibrium, each seller's trading behavior provides an informative and conditionally independent signal about the aggregate state. We ask whether the state is revealed as the number of informed...

We develop a new theory of information production during credit booms. Entrepreneurs need credit to undertake investment projects, some of which enable them to divert resources. Lenders can protect themselves from such diversion in two ways: collateralization and costly screening, which generates durable information about projects. In equilibrium, the collateralization-screening mix depends on the value of aggregate collateral. High collateral values make it possible to...

We study information spillovers in a dynamic setting with correlated assets owned by privately informed sellers. In the model, a trade of one asset can provide information about the value of other assets. Importantly, the information content of trading behavior is endogenously determined. We show that this endogeneity leads to multiple equilibria when assets are sufficiently correlated. The equilibria are ranked in terms of both...