Arbeitspapier
The net worth trap: investment and output dynamics in the presence of financing constraints
We study the impact of financing constraints on investment and output dynamics, in a continuous time setting with output a linear function of capital. Decline of net worth reduces investment and, if firms can rent capital to unconstrained outside investors, can create a 'net worth trap' with both investment and output falling below normal levels for long time periods. We provide a detailed account of our model solution and discuss both the economic intuition underpinning our results and the implications for macroeconomic modeling.
- ISBN
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978-952-323-005-7
- Language
-
Englisch
- Bibliographic citation
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Series: Bank of Finland Research Discussion Papers ; No. 26/2014
- Classification
-
Wirtschaft
Financial Markets and the Macroeconomy
- Subject
-
cash flow management
corporate prudential risk
financial accelerator
financial distress
induced risk aversion
liquidity constraints
liquidity risk
macroeconomic propagation
multiperiod financial management
non-linear macroeconomic modelling
Tobin's q
precautionary savings
- Event
-
Geistige Schöpfung
- (who)
-
Isohätälä, Jukka
Milne, Alistair
Robertson, Donald
- Event
-
Veröffentlichung
- (who)
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Bank of Finland
- (where)
-
Helsinki
- (when)
-
2014
- Handle
- Last update
-
10.03.2025, 11:41 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Isohätälä, Jukka
- Milne, Alistair
- Robertson, Donald
- Bank of Finland
Time of origin
- 2014
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