A Dynamic General Equilibrium Framework of Investment with Financing Constraint

Danyang Xie and Chi-Wa Yuen

No 2002/041, IMF Working Papers from International Monetary Fund

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: WP; interest rate; capital stock (search for similar items in EconPapers)
Pages: 22
Date: 2002-02-01
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Journal Article: A Dynamic General Equilibrium Framework of Investment with Financing Constraint (2003)
Working Paper: A Dynamic General Equilibrium Framework of Investment with Financing Constraint (2002)
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