A Dynamic General Equilibrium Framework of Investment with Financing Constraint
AbstractIn this paper, we provide a dynamic general equilibrium framework with an explicit investment-financing constraint. The constraint is intended as a reduced form to capture the balance sheet effects that have been widely regarded as an important determinant of financial crises. We derive a link between the value of a firm and social welfare. Using this link, we show the somewhat surprising possibility that the value of a firm can be greater with the constraint. Our model also sheds light on how the effects of productivity shocks and investors' misperception of productivity shocks may be amplified by the financing constraint. Copyright 2003, International Monetary Fund
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal IMF Staff Papers.
Volume (Year): 50 (2003)
Issue (Month): 2 ()
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Other versions of this item:
- Chi-wa Yuen & Danyang Xie, 2002. "A Dynamic General Equilibrium Framework of Investment with Financing Constraint," Macroeconomics 0207009, EconWPA.
- Danyang Xie & Chi-Wa Yuen, 2002. "A Dynamic General Equilibrium Framework of Investment with Financing Constraint," IMF Working Papers 02/41, International Monetary Fund.
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
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