A Dynamic General Equilibrium Framework of Investment with Financing Constraint

Danyang Xie and Chi-Wa Yuen
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Chi-Wa Yuen: International Monetary Fund

IMF Staff Papers, 2003, vol. 50, issue 2, 6

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. Copyright 2003, International Monetary Fund

JEL-codes: C61 D92 (search for similar items in EconPapers)
Date: 2003
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Working Paper: A Dynamic General Equilibrium Framework of Investment with Financing Constraint (2002)
Working Paper: A Dynamic General Equilibrium Framework of Investment with Financing Constraint (2002)
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