Intertemporal Constraints, Shadow Prices, and Financial Asset Values

21 Pages Posted: 8 Jun 2004  

Robert S. Chirinko

University of Illinois at Chicago, Department of Finance; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 1987

Abstract

The conditions under which the unobserved shadow price of capital can be equated to the financial value of the firm have been developed in an important paper by Hayashi (1982). Employing a more powerful analytic method, this paper reexamines the shadow price- asset value relation in a model with a general set of intertemporal constraints. For a model with one capital good, a general relation between shadow prices and asset values is derived, and restrictive assumptions implicit in previous work are highlighted. Of particular importance is the relation between the marginal and average survival rates of capital, and the critical role of geometric depreciation. The impact of a discrete-time framework in specifying and interpreting econometric models is also explored.

Suggested Citation

Chirinko, Robert S., Intertemporal Constraints, Shadow Prices, and Financial Asset Values (May 1987). NBER Working Paper No. w2247. Available at SSRN: https://ssrn.com/abstract=304109

Robert S. Chirinko (Contact Author)

University of Illinois at Chicago, Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

HOME PAGE: http://tigger.uic.edu/~chirinko/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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