scholarly journals Maximizing the goal-reaching probability before drawdown with borrowing constraint

2021 ◽  
Vol 6 (8) ◽  
pp. 8868-8882
Author(s):  
Yu Yuan ◽  
◽  
Qicai Li
Keyword(s):  
Borrowing Constraint

Dynamic effects of consumption tax reforms with durable consumption

2020 ◽  
Vol 20 (2) ◽  
Author(s):  
Qian Li
Keyword(s):  
Generation Model ◽  
Consumption Tax ◽  
Income Risk ◽  
Tax Reforms ◽  
Market Completeness ◽  
Durable Consumption ◽  
Poor Households ◽  
Borrowing Constraint ◽  
The Difference ◽  
Consumption Taxes

AbstractThis paper introduces durables into a dynamic general equilibrium overlapping generation model with idiosyncratic income shocks and endogenous borrowing constraints, which depend on durables. The aim of this paper is to evaluate the welfare effects of consumption tax reforms in a richer model that captures the difference between nondurable and durable consumption. When durables are considered, the standard results that a shift to consumption taxes is welfare improving are overturned. The mechanism of this opposing result is that consumption tax makes durable consumption more expensive without relaxing the borrowing constraint. The inability of borrowing to insure against income risk deviates the economy further away from market completeness and particularly hurts young and poor households. As a result, welfare decreases, coupled with negative redistribution.

Financial Integration, Savings Gluts, and Asset Price Booms

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Felix Zhiyu Feng ◽  
Will Jianyu Lu ◽  
Caroline H. Zhu
Keyword(s):  
Financial Integration ◽  
Asset Price ◽  
Substitution Effect ◽  
Wealth Effect ◽  
Precautionary Savings ◽  
Domestic Capital ◽  
Borrowing Constraint ◽  
Savings Rate ◽  
Financing Costs ◽  
Capital Outflows

AbstractCapital outflows after financial integration can lead to simultaneous increases in the national savings rate and asset prices of an economy with substantial financing costs. Under autarky, firms invest in risky capital while facing a borrowing constraint that creates a need for precautionary savings. Financial integration provides firms with access to foreign risk-free assets and results in two effects: a substitution effect, whereby firms divert some investments to foreign assets and cause capital outflows; and a wealth effect, whereby they grow richer in equilibrium and thus demand more domestic capital. Savings gluts and asset price booms occur when the wealth effect dominates.

Anatomy of Corporate Borrowing Constraints*

2020 ◽  
Vol 136 (1) ◽  
pp. 229-291 ◽  
Author(s):  
Chen Lian ◽  
Yueran Ma
Keyword(s):  
Asset Price ◽  
Cash Flows ◽  
Borrowing Constraints ◽  
Collateral Damage ◽  
Total Debt ◽  
Borrowing Constraint ◽  
Corporate Borrowing ◽  
Physical Assets ◽  
Macro Finance ◽  
Nonfinancial Firms

Abstract Macro-finance analyses commonly link firms’ borrowing constraints to the liquidation value of physical assets. For U.S. nonfinancial firms, we show that 20% of debt by value is based on such assets (asset-based lending in creditor parlance), whereas 80% is based predominantly on cash flows from firms’ operations (cash flow–based lending). A standard borrowing constraint restricts total debt as a function of cash flows measured using operating earnings (earnings-based borrowing constraints). These features shape firm outcomes on the margin: first, cash flows in the form of operating earnings can directly relax borrowing constraints; second, firms are less vulnerable to collateral damage from asset price declines, and fire sale amplification may be mitigated. Taken together, our findings point to new venues for modeling firms’ borrowing constraints in macro-finance studies.

scholarly journals Uncertain Portfolio Selection with Borrowing Constraint and Background Risk

2020 ◽  
Vol 2020 ◽  
pp. 1-13 ◽  
Author(s):  
Linjing Lv ◽  
Bo Zhang ◽  
Jin Peng ◽  
Dan A. Ralescu
Keyword(s):  
Portfolio Selection ◽  
Programming Model ◽  
Optimal Portfolio ◽  
Uncertain Variables ◽  
Subjective Beliefs ◽  
Borrowing Constraint ◽  
Optimal Portfolio Selection ◽  
Selection Decision ◽  
Factor Returns ◽  
Portfolio Return

Due to the complexity of financial markets, there exist situations where security returns and background factor returns are available mainly based on experts’ subjective beliefs, such as in the case of lack of historical data. To deal with such indeterminate quantities, uncertain variables are introduced. Based on uncertainty theory, this paper discusses the distribution function of the optimal portfolio return. Two types of new uncertain programming models, namely, the chance-mean model and the measure-mean model, are proposed to make an optimal portfolio selection decision in an uncertain environment. It is proved that there exists an equivalent relation between the chance-mean model and a deterministic linear programming model, which leads to an approach to obtain the optimal solutions of the proposed models. Finally, some numerical examples are illustrated to show the modelling ideas and the effectiveness of the models.

Annuitization and asset allocation with borrowing constraint

2020 ◽  
Vol 48 (5) ◽  
pp. 549-551
Author(s):  
Jin Gi Kim ◽  
Bong-Gyu Jang ◽  
Seyoung Park
Keyword(s):  
Asset Allocation ◽  
Borrowing Constraint

The Buffer Stock Model

2017 ◽  
Author(s):  
Tullio Jappelli ◽  
Luigi Pistaferri
Keyword(s):  
Marginal Utility ◽  
Credit Constraints ◽  
Liquidity Constraints ◽  
Borrowing Constraints ◽  
Precautionary Saving ◽  
Buffer Stock ◽  
Borrowing Constraint ◽  
Stock Model ◽  
Intertemporal Decisions ◽  
Period Model

We analyze models that combine precautionary saving and liquidity constraints to provide a unified, more realistic treatment of intertemporal decisions. We start off with a simple three-period model to illustrate how the expectation of future borrowing constraints can induce precautionary saving even in scenarios in which marginal utility is linear. A more general model that allows liquidity constraints and precautionary saving to interact fully is the buffer stock model, of which there are two versions. One, developed by Deaton (1991), emphasizes the possibility that a prudent and impatient consumer may face credit constraints. The other, by Carroll (1997), features the same type of consumer but allows for the possibility of income falling to zero and so generating a natural borrowing constraint.

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