The Relevance of Financial Policy

Detemple, J.;Gottardi, P.;Polemarchakis, HM.
(1995) European Economic Review — Vol. 39, n° 6, p. 1133-1154 (1995)

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  • Detemple, J.
    Author
  • Gottardi, P.
    Author
  • Polemarchakis, HM.
    Author
Abstract
When the asset market is incomplete, equilibrium allocations are not invariant to changes in the financial policies of firms: in the presence of secondary assets, such as options, whose payoffs depend nonlinearly on the price of equity, the range of attainable reallocations of revenue varies as a firm alters its position in the asset market. Corporate financial policy is thus relevant. When assets are nominal, monetary policy implemented through open market operations is also effective.
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Detemple, J., Gottardi, P., & Polemarchakis, HM. (1995). The Relevance of Financial Policy. European Economic Review, 39(6), 1133-1154. https://doi.org/10.1016/0014-2921(94)00106-A (Original work published 1995)