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 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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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0207009.
Length: 25 pages
Date of creation: 22 Aug 2002
Date of revision:
Note: Type of Document - Acrobat PDF; prepared on PC; to print on HP; pages: 25; figures: Included
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Investment Constraint; Value of the Firm;
Other versions of this item:
- Danyang Xie & Chi-Wa Yuen, 2003. "A Dynamic General Equilibrium Framework of Investment with Financing Constraint," IMF Staff Papers, Palgrave Macmillan, vol. 50(2), pages 6.
- 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
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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