A model of investment subject to financing constraints

Time: 1.00pm - 2.00pm
Venue: R407 (FMG Library), 4th Floor, Lionel Robbins Building.
Speaker: Alistair Milne (Loughborough University)
Title: A model of investment subject to financing constraints

Abstract: This paper unifies the recent analysis of macroeconomic fluctuations of (Brunnermeier and Sannikov 2014), in which firms subject to financing constraints can sell capital in order to avoid liquidation, with the earlier related paper of (Milne and Robertson 1996), in which firms manage cash flow, output and investment decisions in order to lower the probability of liquidation. This unification: yields more tractable solution; elucidates the underlying economic mechanisms; reveals how the key result reported by Brunnermeier and Sannikov (a bimodal ergodic distribution of firm net worth) varies with parameter choice and model structure; and supports a deeper policy discussion.