TY  - JOUR
AU  - Gertler,Mark
TI  - Financial Capacity, Reliquification, and Production in an Economy with Long-Term Financial Arrangements
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2763
PY  - 1988
Y2  - November 1988
UR  - http://www.nber.org/papers/w2763
L1  - http://www.nber.org/papers/w2763.pdf
N1  - Author contact info:
Mark Gertler
Department of Economics
New York University
269 Mercer Street, 7th Floor
New York, NY 10003
Tel: 212/998-8931
Fax: 212/995-4186
E-Mail: mark.gertler@nyu.edu
AB  - This paper characterizes a multi-period production economy in which borrowers and lenders enter long-term financial contracts. A key feature is that aggregate production and borrowers' capacity to absorb debt -- their "financial capacity"  - are jointly determined endogenous variables, in the spirit of Gurley and Shaw (1955) Expectations of future economic conditions govern financial capacity, which in turn influences current capacity utilization. Further, disturbances in the present may persist into the future by influencing borrowers' net asset positions. Finally, borrowers may substitute future for current production by preserving their assets in hard times, behavior akin to reliquification as described in Eckstein and Sinai (1986).
ER  -