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Working Paper
Time-Consistent Agents, Time-Inconsistent Firms: Investment in Heterogeneous-Agent Economies
This paper studies firms' investment decisions in heterogeneous-agent economies with trading frictions in financial markets. Shareholders have time-consistent preferences but disagree on the timing of dividends. As a consequence, the firm’s problem is endogenously time-inconsistent: the firm behaves as if it faces quasi-hyperbolic discounting, opening a corporate discount-rate wedge between the rate at which it discounts investment and its financial cost of capital. In a calibrated economy, larger trading frictions imply lower capital but only when firms cannot commit to an investment ...
Working Paper
Liquidity and Investment in General Equilibrium
This paper studies the implications of trading frictions in financial markets for firms' investment and dividend choices and their aggregate consequences. When equity shares trade in frictional asset markets, the firm's problem is time-inconsistent, and it is as if it faces quasi-hyperbolic discounting. The transmission of trading frictions to the real economy crucially depends on the firms' ability to commit. In a calibrated economy without commitment, larger trading frictions imply lower capital and production. In contrast, if firms can commit, trading frictions affect asset prices but have ...
Working Paper
Liquidity and Investment in General Equilibrium
This paper studies the implications of trading frictions in financial markets for firms' investment and dividend choices, and their aggregate consequences. When equity shares trade in frictional asset markets, the firm's problem is time-inconsistent, and it is as if it faces quasi-hyperbolic discounting. The transmission of trading frictions to the real economy crucially depends on the firms' ability to commit. In a calibrated economy without commitment, larger trading frictions imply lower capital and production. In contrast, if firms can commit, trading frictions affect asset prices but ...
Working Paper
Liquidity and Investment in General Equilibrium
This paper studies the implications of trading frictions in financial markets for firms' investment and dividend choices, and their aggregate consequences. When equity shares trade in frictional asset markets, the firm's problem is time-inconsistent, and it is as if it faces quasi-hyperbolic discounting. The transmission of trading frictions to the real economy crucially depends on the firms' ability to commit. In a calibrated economy without commitment, larger trading frictions imply lower capital and production. In contrast, if firms can commit, trading frictions affect asset prices but ...
Working Paper
Liquidity and Investment in General Equilibrium
This paper studies how trading frictions in financial markets impact firms’ investment and dividend policies, and explores its aggregate consequences. When equity shares trade in frictional asset markets, the firm’s problem is time-inconsistent, and it is as if it faces quasi-hyperbolic discounting. The transmission of trading frictions to the real economy crucially depends on the firms’ ability to commit. In a calibrated economy without commitment, larger trading frictions imply lower capital. In contrast, if firms can commit, trading frictions affect asset prices but have little ...
Working Paper
Liquidity and Investment in General Equilibrium
This paper studies how trading frictions in financial markets impact firms’ investment and dividend policies, and explores its aggregate consequences. When equity shares trade in frictional asset markets, the firm’s problem is time-inconsistent, and it is as if it faces quasi-hyperbolic discounting. The transmission of trading frictions to the real economy crucially depends on the firms’ ability to commit. In a calibrated economy without commitment, larger trading frictions imply lower capital. In contrast, if firms can commit, trading frictions affect asset prices but have little ...
Working Paper
Liquidity and Investment in General Equilibrium
This paper studies the implications of trading frictions in financial markets for firms' investment and dividend choices and their aggregate consequences. When equity shares trade in frictional asset markets, the firm's problem is time-inconsistent, and it is as if it faces quasi-hyperbolic discounting. The transmission of trading frictions to the real economy crucially depends on the firms' ability to commit. In a calibrated economy without commitment, larger trading frictions imply lower capital and production. In contrast, if firms can commit, trading frictions affect asset prices but have ...