A Dynamic General Equilibrium Framework of Investment with Financing Constraint

Chi-wa Yuen and Danyang Xie
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Chi-wa Yuen: University of Hong Kong

Macroeconomics from University Library of Munich, Germany

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 the firm and social welfare. We find that the value of the 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.

Keywords: Investment Constraint; Value of the Firm (search for similar items in EconPapers)
JEL-codes: C61 D92 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2002-08-22
New Economics Papers: this item is included in nep-dge and nep-ifn
Note: Type of Document - Acrobat PDF; prepared on PC; to print on HP; pages: 25; figures: Included
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https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0207/0207009.pdf (application/pdf)

Related works:
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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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0207009

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