A Dynamic General Equilibrium Framework of Investment with Financing Constraint
February 1, 2002
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Summary
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, which have been widely regarded as an important determinant of financial crises. We derive a link between the value of the firm and the social welfare and we find that the value of the firm can be greater with than without the constraint. Our model also sheds light on how the effects of productivity shocks and bubbles may be amplified by the financing constraint.
Subject: Banking, Consumption, Financial crises, Financial statements, Stocks
Keywords: capital stock, interest rate, WP
Pages:
22
Volume:
2002
DOI:
Issue:
041
Series:
Working Paper No. 2002/041
Stock No:
WPIEA0412002
ISBN:
9781451846119
ISSN:
1018-5941
