Retrieving "Liquidity Shocks" from the archives

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1. Private Investment

   Linked via "liquidity shocks"

   Investment Volatility and Financial Frictions
   During financial distress, investment often contracts sharply, even if fundamentals appear sound. This rapid decline is often exacerbated by financial frictions, where banks become unwilling to lend against uncertain future cash flows generated by new capital assets. Furthermore, the amortization schedules for privately acquired capital goods often impose mandatory principal repayments that are disproportionately high in the early years (the "…