Research Article
Money and the Capital Structure of a Single Owner in Incomplete Markets with Production
Issue:
Volume 14, Issue 6, December 2025
Pages:
301-308
Received:
10 September 2025
Accepted:
22 September 2025
Published:
10 November 2025
DOI:
10.11648/j.acm.20251406.11
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Abstract: This paper examines the influence of monetary policy on corporate economies, focusing on whether supply fluctuations affect the decisions of economic agents or whether money is neutral under specific conditions. To investigate this, we develop a two-period general equilibrium model with incomplete and production financial markets, capturing frictions and asymmetries typical of real financial systems. The model is then applied to a corporate finance context, analyzing a capital structure with a single owner. The findings show that monetary policy is generally not neutral when markets are incomplete. Neutrality of money emerges only as a special case when markets are fully complete and efficient, conditions rarely observed in practice. The equilibrium model demonstrates that monetary policy is not neutral or generally does not occur unless markets are complete. For the case of a single owner in a capital structure, Fisher’s separation theorem is valid, reinforcing the non-neutrality of money in this economy with markets and incomplete production.In other words, being in an incomplete exchange environment affects the path of consumption of economic agents, although it does not alter the firm âs operational framework. For future research, it would be relevant to extend the analysis time horizon, relax the assumption regarding currency carryover, incorporate private or public banks with fiscal policies into the model, and also consider the application of the Modigliani-Miller theorem
Abstract: This paper examines the influence of monetary policy on corporate economies, focusing on whether supply fluctuations affect the decisions of economic agents or whether money is neutral under specific conditions. To investigate this, we develop a two-period general equilibrium model with incomplete and production financial markets, capturing frictio...
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Mathias Schneid Tessmann*
