Financing constraints, irreversibility and investment dynamics

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Forthcoming, Journal of Monetary Economics
To cite or link this document: Caggese, Andrea
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa 2001-06-01
dc.identifier.citation Forthcoming, Journal of Monetary Economics
dc.description.abstract We develop a model of an industry with many heterogeneous firms that face both financing constraints and irreversibility constraints. The financing constraint implies that firms cannot borrow unless the debt is secured by collateral; the irreversibility constraint that they can only sell their fixed capital by selling their business. We use this model to examine the cyclical behavior of aggregate fixed investment, variable capital investment, and output in the presence of persistent idiosyncratic and aggregate shocks. Our model yields three main results. First, the effect of the irreversibility constraint on fixed capital investment is reinforced by the financing constraint. Second, the effect of the financing constraint on variable capital investment is reinforced by the irreversibility constraint. Finally, the interaction between the two constraints is key for explaining why input inventories and material deliveries of US manufacturing firms are so volatile and procyclical, and also why they are highly asymmetrical over the business cycle.
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 1008
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.title Financing constraints, irreversibility and investment dynamics
dc.type info:eu-repo/semantics/workingPaper 2014-06-03T07:14:20Z
dc.subject.keyword Finance and Accounting
dc.subject.keyword financing constraints
dc.subject.keyword irreversibility
dc.subject.keyword investment
dc.rights.accessRights info:eu-repo/semantics/openAccess

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