This is a theory of endogenous volatility over the business cycle based on firm-level intangible expenditures. We propose a firm dynamics model with endogenous market participation. Firms that incur higher intangible expenses are able to serve more markets and diversify market-specific demand...

This paper explores how banks' balance sheets and sovereign risk affect macroeconomic fluctuations jointly. The heightened sovereign risk and a potential default constrain the banks' ability to extend credit to firms. This happens through the capital requirement that limits the size of the bank...