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Title:Limited Pledgeability, Asset Prices, and Macroeconomic Fluctuations PDF Logo
Authors:Zhang, Haiping
Issue Date:2005
Series/Report no.:Bonn econ discussion papers 2005,11
Abstract:According to the theory of incomplete contracts, given nonverifiable entrepreneurial project choices together with divergent objectives between an entrepreneur and its outside financier, the entrepreneur can credibly pledge only part of its project outcome for external funding. Meanwhile, entrepreneurial net worth must be put as down payment to ameliorate agency costs. In a real dynamic general equilibrium model with heterogeneous agents and nonverifiable project choices, endogenous agency costs significantly change the businesscycle pattern in the sense that the model can replicate an important empirical fact, the amplified hump-shaped output behavior. Furthermore, variable asset prices can affect entrepreneurial net worth and then subsequently change the dynamic features of aggregate output along business cycles.
Subjects:Asset Prices
Business Cycles
Credit Constraints
Hump-Shaped Output Dynamics
Nonverifiable Project Choice
JEL:E32
G3
E44
Document Type:Working Paper
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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