Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098716 | Journal of Economic Dynamics and Control | 2013 | 22 Pages |
Abstract
This paper shows that non-convex costs of financial adjustment are quantitatively relevant for explaining firm dynamics. First, empirically, financial activity is lumpy, more than investment activity. Second, non-convex costs are necessary, in the context of a dynamic investment and financing model, to rationalize this lumpiness. Two versions of the model, with and without non-convex costs, are compared. Only the non-convex costs version replicates the dynamics in the data, generating financial lumpiness higher than investment lumpiness. Other predictions of the model with respect to investment and finance are discussed.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Santiago Bazdresch,