The net worth trap: investment and output dynamics in the presence of financing constraints
نویسندگان
چکیده
We study the impact of nancing 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 rms 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.[83 words]. Journal of Economic Literature number: E44
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