Investment Facing Credit Rationing
The explicit expression of investment facing credit rationing and convex adjustment costs is derived. Three implications follow. First, the assumption of convex adjustment costs can be substituted by credit rationing to derive an investment function. Second, it explains how credit rationing acts as a financial 'brake' at the bottom of a slump, when investment demand is high and collateral is low. Third, it allows to derive the explicit Lagrange multiplier related to credit rationing and to check for misspecification in recent empirical work. Copyright 1998 by Blackwell Publishers Ltd and The Victoria University of Manchester
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Volume (Year): 66 (1998)
Issue (Month): 0 (Supplement)
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