A Dynamic General Equilibrium Framework of Investment with Financing Constraint
22 Pages Posted: 30 Jan 2006
Date Written: February 2002
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, 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.
Keywords: investment constraint, value of the firm
JEL Classification: C61, D92
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Monetary Policy with a Touch of Basel
By Ralph Chami and Thomas F. Cosimano
-
Monetary Policy with a Touch of Basel
By Ralph Chami and Thomas F. Cosimano
-
Bank Capital Channels in the Monetary Transmission Mechanism
-
A Model of Bank Capital, Lending and the Macroeconomy: Basel I Versus Basel Ii
By Lea Zicchino
-
Bank Procyclicality, Credit Crunches, and Asymmetric Monetary Policy Effects: A Unifying Model
By Robert R. Bliss and George G. Kaufman
-
Bank Procyclicality, Credit Crunches, and Asymmetric Monetary Policy Effects: A Unifying Model
By Robert R. Bliss and George G. Kaufman
-
How Do Bank Capital and Capital Adequacy Regulation Affect the Monetary Transmission Mechanism?
By Misa Tanaka