Optimal investment with fixed refinancing costs
Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, 2001 - Business & Economics - 35 pages
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additional dollar additional external ﬁnance assumption Brian Sack cash ﬂow condition for external cost of external cost of reﬁnancing debt decision problem decreases deﬁned described in Proposition dollar of cash Dr+1 Economics Discussion Series effects external ﬁnance equation Federal Reserve Board Finance and Economics ﬁnancial contracts ﬁnancial friction ﬁnancial xenophobia ﬁnanciers ﬁnancing and investment ﬁnancing decisions ﬁrm holds ﬁrst constraint equation ﬁrst-order condition ﬁxed cost hold cash hold liquidity hold-up problem holds no liquidity holds with equality idle liquidity Implicit Function Theorem increase external ﬁnance Intermediate Value Theorem internal funds investment and ﬁnancing Investment With Fixed Jason G liquidity holding management’s marginal cost Monetary Policy neoclassical fundamentals optimal capital stock Optimal Investment physical capital precautionarily save proﬁts Proof of Proposition reﬁ reﬁnancing in period repaying external ﬁnance revenue shock solve for A1 stock and external stock of external strictly increasing stylized facts threshold triggers reﬁnancing under-investment Wealth Effect