We present a dynamic general equilibrium model with agency costs, where heterogeneous firms choose between two alternative instruments of external finance - corporate bonds and bank loans. We characterize the financing choice of firms and the endogenous financial structure of the economy. The...

This paper considers the estimation of a number of commonly used single-equation linear models, all of which have rationally expected future explanatory variables. Fully efficient and less efficient instrumental variable estimators are proposed in each case. The choice of estimation method is...

In this paper, we propose to identify the dependence structure existing between the returns of equity and commodity futures and its evolution through the past 20 years. The key point is that we do not do not impose the dependence structure but let the data select it. To do so, we model the...

This paper builds a framework for the analysis of macroeconomic fluctuations that incorporates the endogenous determination of the number of producers and products over the business cycle. Economic expansions induce higher entry rates by prospective entrants subject to irreversible investment...

This paper estimates the dynamic effects of changes in taxes in the United States. We distinguish between the effects of changes in personal and corporate income taxes using a new narrative account of federal tax liability changes in these two tax components. We develop an estimator in which...

The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al. (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic...

How and why do financial conditions matter for real outcomes? The ‘workhorse model of money and liquidity’ of Kiyotaki and Moore (2008) shows how--with full employment maintained by flexible prices--shifting credit constraints can affect investment and future aggregate supply. We show that,...

We evaluate the extent to which a dynamic stochastic general equilibrium model can account for the impact of "surprise" and "anticipated" tax shocks estimated from U.S. time-series data. In U.S. data, surprise tax cuts have expansionary and persistent effects on output, consumption, investment...

How should monetary policy respond to changes in financial conditions? In this paper we consider a simple model where firms are subject to idyosincratic shocks which may force them to default on their debt. Firms' assets and liabilities are denominated in nominal terms and predetermined when...