Journal Description Editorial Committee How to Subscribe Forthcoming Articles Staff Papers Archive Copyright Information Research at the IMF Free Email Notification Receive emails when we post new
items of interest to you.
|
|
|
|
A Dynamic General Equilibrium Framework of Investment with Financing Constraint Danyang Xie and Chi-Wa Yuen Full Text of this Article (PDF 356K) 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 a firm and social welfare. Using this link, we show the somewhat surprising possibility that the value of a 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.
|
