Capital markets and economic fluctuations in capitalist economies

Capital is at the heart of capitalism: it is, accordingly, not surprising that we should look to failures in capital markets to account for one of the most important failures of capitalism, the marked fluctuations in output and employment which have characterized capitalism throughout its history. For more than a decade now, I and several of my co-authors (in particular, Bruce Greenwald and Andrew Weiss) have been exploring the thesis that it is imperfections in the capital market imperfections which themselves can be explained by imperfect information which account for many of the peculiar aspects of the behavior of the economy which macroeconomics attempts to exp1ain.r In this lecture, I want to provide an overview of that endeavor, to explain why it is that we have increasing confidence in the importance of capital market imperfections, to contrast our

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