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The relevance of financial policy

  • Detemple, J.
  • Gottardi, P.
  • Polemarchakis, H. M.

When the asset market is incomplete, equilibrium allocations are not invariant to changes in the financial policies of firms: in the presence of secondary assets, such as options, whose payoffs depend nonlinearly on the price of equity, the range of attainable reallocations of revenue varies as a firm alters its position in the asset market. Corporate financial policy is thus relevant. When assets are nominal, monetary policy implemented through open market operations is effective.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 39 (1995)
Issue (Month): 6 (June)
Pages: 1133-1154

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Handle: RePEc:eee:eecrev:v:39:y:1995:i:6:p:1133-1154
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  1. Eckwert, Bernhard, 1993. "Allocative effects of financial assets and the long run neutrality of money when markets are incomplete," European Economic Review, Elsevier, vol. 37(1), pages 75-95, January.
  2. Mas-Colell,Andreu, 1990. "The Theory of General Economic Equilibrium," Cambridge Books, Cambridge University Press, number 9780521388702, October.
  3. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  4. Stiglitz, Joseph E, 1974. "On the Irrelevance of Corporate Financial Policy," American Economic Review, American Economic Association, vol. 64(6), pages 851-66, December.
  5. Gottardi, P., 1990. "On The Non Neutrality Of Money With Incomplete Market," Papers 158, Cambridge - Risk, Information & Quantity Signals.
  6. Hellwig, Martin F, 1981. "Bankruptcy, Limited Liability, and the Modigliani-Miller Theorem," American Economic Review, American Economic Association, vol. 71(1), pages 155-70, March.
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