OVERCOMING FINANCIAL FRICTIONS WITH THE FRIEDMAN RULE

A general equilibrium model with financial frictions in which individuals may encounter unobservable investment opportunities is developed along the lines of Kiyotaki and Moore (2012). I study efficiency properties induced by money and monetary policy when financial frictions prevent optimal equilibrium allocations. By providing closed-form solutions to all prices, allocations, welfare, and, especially, the distribution of individuals with respect to assets, I show that the Friedman rule achieves maximal social welfare, independent of how tight the financial constraints may be. The same level of welfare would be induced by an omniscient central planner able to verify who has an investment opportunity.

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Liquidity, Monetary Policy, and the Financial Crisis: A New Monetarist Approach

The American Economic Review ◽

10.1257/aer.102.6.2570 ◽

2012 ◽

Vol 102 (6) ◽

pp. 2570-2605 ◽

Cited By ~ 102

Author(s):

Stephen D Williamson

Keyword(s):

Monetary Policy ◽

Fiscal Policy ◽

Financial Crisis ◽

Financial Frictions ◽

Open Market ◽

Public And Private ◽

Liquidity Trap ◽

Friedman Rule ◽

Crisis Phenomenon ◽

Asset Purchases

A model of public and private liquidity integrates financial intermediation theory with a New Monetarist monetary framework. Non-passive fiscal policy and costs of operating a currency system imply that an optimal policy deviates from the Friedman rule. A liquidity trap can exist in equilibrium away from the Friedman rule, and there exists a permanent nonneutrality of money, driven by an illiquidity effect. Financial frictions can produce a financial-crisis phenomenon that can be mitigated by conventional open market operations working in an unconventional manner. Private asset purchases by the central bank are either irrelevant or they reallocate credit and redistribute income. (JEL E13, E44, E52, E62, G01)

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Excess cash holdings, investment opportunity and shareholder value: European evidences

Corporate Ownership and Control ◽

10.22495/cocv14i1c4art9 ◽

2016 ◽

Vol 14 (1) ◽

pp. 630-639 ◽

Cited By ~ 2

Author(s):

Simone Terzani ◽

Giovanni Liberatore

Keyword(s):

Financial Constraints ◽

Shareholder Value ◽

Cash Holdings ◽

Investment Opportunity ◽

Ceteris Paribus ◽

Marginal Value ◽

Investment Opportunities ◽

High Investment ◽

Precautionary Motive ◽

Excess Cash

In this paper, we examine the marginal value of extra liquidity for a sample of excess cash listed companies (i.e. ECs) operating in the five largest E.U. economies (France, Italy, Germany, Spain and UK). After had shown that these companies are generally penalised by the market, in line with previous literature, we show that extra cash held is not detrimental to shareholder value when it is combined with high investment opportunities leading, hence, in a premium of 1€ extra held. This relation is even stronger during the financial crisis of 2008. These results confirm that the main reason why ECs are generally valued less by the market is the concern that their managers may deploy excess cash in value-destroying activities. However, EC firms are not penalized ceteris paribus when there are investment opportunities. In addition, such relation is stronger with the presence of financial constraints and lack of liquidity, as explained by the transaction and precautionary motive for holding cash.

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Implications of Cash Flows and Investment Opportunity for Investment Decisions in Fixed Assets on Financially Constrained Companies

International Journal for Innovation Education and Research ◽

10.31686/ijier.vol8.iss1.2078 ◽

2020 ◽

Vol 8 (1) ◽

pp. 69-75

Author(s):

Citra Veronisa

Keyword(s):

Cash Flow ◽

Financial Constraints ◽

Stock Exchange ◽

Investment Decisions ◽

Cash Flows ◽

Investment Opportunity ◽

Fixed Assets ◽

Investment Opportunities ◽

Conceptual Paper ◽

Intervening Variables

This research is a conceptual paper that aims to determine the effect of cash flow and investment opportunity for investment decisions in fixed assets on financially constrained companies. This type of research is explanatory research with companies in the property and real estate sectors listed on the Indonesia Stock Exchange in 2016-2018 as a population.This research will be conducted to predict how much the level of investment decisions is influenced by cash flow and investment opportunities with financial constraints as intervening variables. Based on previous research, shows differences in research results, so the authors aim to see the results of research on companies in Indonesia with different conditions and measurement variables.

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