Financing Constraints, Discounting Restrictions And Output Fluctuations

Our Country currently is facing a serious capital-mismatch problem, which is caused by firm’s suboptimal choice in essence. The paper hold the view that a typical decision problem for a firm includes financing constraints and discounting restrictions, the existence of which make it difficult for a firm to make the best decision based on the market price. Financing constraints is the borrowing limitations of a firm during the investment. Just like family decisions facing the fiscal limitations, firm decisions also can not escape from its fiscal limitations when financing the firm can not get every resource obviously. What most likely will happen is that the best investment exceeds the financing constraints. Conventional firm’s decision would not take this into consideration. The other problem for the firm’s decision is discounting restrictions, which is rooted in the controlled lending rate. Once this kind of rate is used for discounting the firm’s future value, it will affect the present value of the firm. As a consequence, it misleads the firm’s choice and results in the capital-mismatch problem.Guided by these two topics, the thesis intends to explore the influence towards output fluctuations of Financing Constraints & Discounting Restrictions. The introduce of the two factors makes this paper the first time to solve the firm’s optimization from the insider’s view among all DSGE models and open the black box for the firm’s choice, which also makes it the main innovative points of the essay. To begin with, the qualitative analysis chapter collects & combines quarterly data of Social Financing Scale released by PBC since 2002, also it divides Social Financing Scale into debt financing scale & equity financing scale. After a H-P filter process, we find a positive correlation between the smoothed series of debt financing scale and real GDP and the cycled series of debt financing scale and real GDP fluctuates towards the same direction. Besides, the smoothed series of equity financing scale and real GDP shows no distinct correlation and the cycled series of debt financing scale and real GDP fluctuates towards the opposite directions, but a positive relation is found between debt financing scale and Shanghai Composite Index. Then, we apply quantitative analysis using DSGE model and calibration to figure out how output fluctuations will react under the financing constraints & discounting restrictions. This quantitative analysis believes innovations to technology, financing constraints & discounting restrictions could explain the most part of output fluctuations, and these three innovations’ explanatory ability decreases. Some output fluctuations which can not be explained by technical innovation might be interpreted by financing constraints innovation. This finding verifies the existence and influence of financing constraints innovation.