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We present a DSGE model where firms optimally choose among alternative instruments of external finance. The model is used to explain the evolving composition of corporate debt during the financial crisis of 2008-09, namely the observed shift from bank finance to bond finance, at a time when the...
Persistent link: https://www.econbiz.de/10011096582
We study the effects of credit shocks in a model with heterogeneous entrepreneurs, financing constraints, and a realistic firm-size distribution. As entrepreneurial firms can grow only slowly and rely heavily on retained earnings to expand the size of their business, we show that, by reducing...
Persistent link: https://www.econbiz.de/10011160658
This paper argues that counter-cyclical liquidity hoarding by financial intermediaries may strongly amplify business cycles. It develops a dynamic stochastic general equilibrium model in which banks operate subject to agency problems and funding liquidity risk in their intermediation activity....
Persistent link: https://www.econbiz.de/10011264653
In modern capitalist economies, income distribution has a tendency to be in favor of shareholders. This paper interprets pro-shareholder distribution as a decrease in the retention ratio of firms and an increase in the profit share. We introduce labor supply constraints into a post-Keynesian...
Persistent link: https://www.econbiz.de/10010776477
Investment booms and asset "bubbles" are often the consequence of heavily leveraged borrowing and speculations of persistent growth in asset demand. We show theoretically that dynamic interactions between elastic credit supply (due to leveraged borrowing) and persistent credit demand (due to...
Persistent link: https://www.econbiz.de/10010856604
In this paper, by utilizing the Poincaré–Bendixson theory and the Hopf bifurcation theory, we analyze both rigid-price and flexible-price nonlinear disequilibrium Keynesian macroeconomic systems, prove the existence of a persistent business cycle and derive the conditions for global...
Persistent link: https://www.econbiz.de/10010906613
We provide a model with sector-specific debt-collateral constraints to analyze how asymmetric financing conditions across sectors affect the aggregate investment, credit and output composition. In our model, investments in the construction sector allow for higher leverage than investments in the...
Persistent link: https://www.econbiz.de/10011048589
We explore shocks to expected future productivity in a model with limited enforcement of financial contracts. A microfounded collateral constraint implies that good news about future productivity yield an increase in stock prices, available credit and a general economic expansion.
Persistent link: https://www.econbiz.de/10010933285
Despite the widespread belief that technology shocks are the main source of business fluctuations, recent empirical studies indicate that in the absence of financial frictions, a shock to the marginal efficiency of investment is the main source and is closely related to financial conditions for...
Persistent link: https://www.econbiz.de/10010744707
This paper constructs a two-country DSGE model to study the nature of the recent financial crisis and its effects that spread immediately throughout the world owing to the globalization of banking. In the model, financial intermediaries (FIs) enter into chained credit contracts at home and...
Persistent link: https://www.econbiz.de/10010582624