Showing 1 - 10 of 13
This paper analyzes a class of competitive economies with production, incomplete financial markets, and agency frictions. Firms take their production, financing, and contractual decisions so as to maximize their value under rational conjectures. We show that competitive equilibria exist and that...
Persistent link: https://www.econbiz.de/10010795048
We consider an economy where individuals face uninsurable risks to their human capital accumulation, and study the problem of determining the optimal level of linear taxes on capital and labor income together with the optimal path of the debt level. We show both analytically and numerically that...
Persistent link: https://www.econbiz.de/10010862111
We study a general equilibrium model in which firms choose their capital structure optimally, trading off the tax advantages of debt against the risk of costly default. The costs of default are endogenous: bankrupt firms are forced to liquidate their assets, resulting in a fire sale if there is...
Persistent link: https://www.econbiz.de/10010862113
Using vector autoregressions on U.S. time series, we find that technology shocks induce an ‘S’- shaped cross-correlation function for the trade balance and the terms of trade (S-curve). In calibrating a prototypical international business cycle model to match the S-curve under complete and...
Persistent link: https://www.econbiz.de/10005816401
This paper examines consumption and savings dynamics in a standard model of incomplete markets. Existence of equilibrium requires the imposition of exogenous debt limits but these are often ignored because of the computational difficulties that arise in models with occasionally binding...
Persistent link: https://www.econbiz.de/10005697731
At a competitive equilibrium of an incomplete-markets economy agents’ marginal valuations for the tradable assets are equalized ex-ante. We characterize the finest partition of the state space conditional on which this equality holds for any economy. This leads naturally to a necessary and...
Persistent link: https://www.econbiz.de/10009653951
While it is recognized that the family is primarily an institution for risk sharing, little is known about the quantitative effects of this informal source of insurance on savings and labor supply. In this paper, we present a model where workers (females and males) are subject to idiosyncratic...
Persistent link: https://www.econbiz.de/10008868070
We study the value of information in a competitive economy in which agents trade in asset markets to reallocate risk. We characterize the kinds of information that allow a welfare improvement when portfolios can be freely reallocated. We then compare competitive equilibria before and after a...
Persistent link: https://www.econbiz.de/10008868080
We study a general equilibrium model with production where financial markets are incomplete. At a competitive equilibrium firms take their production and financial decisions so as to maximize their value. We show that shareholders unanimously support value maximization. Furthermore, competitive...
Persistent link: https://www.econbiz.de/10008631551
We study a competitive model in which market incompleteness implies that debt-financed firms may default in some states of nature and default may lead to the sale of the firms’ assets at fire sale prices when markets are illiquid. This incompleteness is the only friction in the model and the...
Persistent link: https://www.econbiz.de/10008558918