We introduce heterogeneity in investors’ ability to borrow from collateral in a Kiyotaki–Moore style macro model, calibrated to the quintiles of the leverage-ratio distribution of US non-financial firms. Financial amplification intensifies, because of stronger asset price reactions of highly...

We analyze the formality benefits through productivity-enhancing public goods. We document that: benefits from formality matter for firms’ optimal decisions; there is a disconnect between the objectives of maximizing formality versus welfare; this disconnect is mitigated under higher formality...

This letter explores the role of costly liquidation of the collateralized asset in a stochastic version of the Kiyotaki and Moore (1997) model. We document that the degree of inefficiency in the debt enforcement procedure plays a key role in the endogenous amplification of productivity shocks...