Financial Frictions, Investment Delay and Asset Market Interventions
AbstractWe construct a dynamic macro model to incorporate financial frictions and investment delay. Investment is undertaken by entrepreneurs who face liquidity frictions in the equity market and a collateral constraint in the debt market. After calibrating the model to the US data, we quantitatively examine how aggregate activity is affected by a shock to equity liquidity and a shock to entrepreneurs' borrowing capacity. We then analyze the effectiveness of government interventions in the asset market after such financial shocks. In particular, we compare the effects of government purchases of private equity and of private debt in the open market. In addition, we examine how these effects of government interventions depend on the option to delay investment.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-501.
Length: Unknown pages
Date of creation: 04 Oct 2013
Date of revision:
Contact details of provider:
Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283
Financial frictions; Liquidity; Asset market interventions; Investment delay; Equity; Collateral.;
Find related papers by JEL classification:
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-18 (All new papers)
- NEP-DGE-2013-10-18 (Dynamic General Equilibrium)
- NEP-MAC-2013-10-18 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ajello, Andrea, 2010.
"Financial intermediation, investment dynamics and business cycle fluctuations,"
32447, University Library of Munich, Germany, revised Mar 2011.
- Andrea Ajello, 2012. "Financial intermediation, investment dynamics and business cycle fluctuations," Finance and Economics Discussion Series 2012-67, Board of Governors of the Federal Reserve System (U.S.).
- Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
- Francisco Covas & Wouter J. Den Haan, 2011. "The Cyclical Behavior of Debt and Equity Finance," American Economic Review, American Economic Association, vol. 101(2), pages 877-99, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePEc Maintainer).
If references are entirely missing, you can add them using this form.