A Dynamic General Equilibrium Framework of Investment with Financing Constraint

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A Dynamic General Equilibrium Framework of Investment with Financing Constraint

Author Info

Chi-wa Yuen (University of Hong Kong)
Danyang Xie (International Monetary Fund)

Additional information is available for the following registered author(s):

Danyang Xie

Abstract

In 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 the firm and social welfare. We find that the value of the 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.

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Paper provided by EconWPA in its series Macroeconomics with number 0207009.

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Length: 25 pages
Date of creation: 22 Aug 2002
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Handle: RePEc:wpa:wuwpma:0207009

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Article
Paper
- Chi-Wa Yuen & Danyang Xie, 2002. "A Dynamic General Equilibrium Framework of Investment with Financing Constraint," IMF Working Papers 02/41, International Monetary Fund. [Downloadable!]

Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing

This paper has been announced in the following NEP Reports:

NEP-ALL-2002-08-29 (All new papers)
NEP-DGE-2002-08-29 (Dynamic General Equilibrium)
NEP-IFN-2002-08-29 (International Finance)

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