We study a production economy with multiple sectors financed by issuing securities to agents who face capital constraints. Binding capital constraints propagate business cycles, and a reduction of the interest rate can increase the required return of high-haircut assets since it can increase the...

This paper studies a macroeconomic model in which financial experts borrow from less productive agents in order to invest in financial assets. We pursue three set of results: (i) Going beyond a steady state analysis, we show that adverse shocks cause amplifying price declines not only through...