This paper studies optimal monetary policy under dynamic debt deleveraging once the zero bound is binding. Unlike the …

Equilibrium in the market for real assets requires that the price of those assets be bid up to reflect the tax shields … optimally levered firms. The standard measure of the advantage to leverage compares the values of levered and unlevered assets …, and can be misleading and difficult to interpret. We show that a meaningful measure of the advantage to debt is the extra …

Government guarantees of private debt deplete equity. The depletion is greatest during periods when the probability of … debt up to the limit the government permits. Declines in asset values raise debt in relation to asset values and thus … asset values to market. Less widely recognized is that guaranteed debt creates an incentive to pay equity out to owners …

and borrowers ample reason to care whether nonperforming debts are restructured. One implication of the way in which debt … argument is moral hazard, but (unlike in much of the recent literature of emerging market debt problems) what is central here …

single large tax rate increase that would be required to avoid an initial increase in the national debt. This argument … tax rates can be explicitly balanced against the disadvantage of the excess burden that arises from additional debt. The … government borrowing? In the case of a temporary increase in government spending, it has been argued that debt finance is optimal …

a main determinant of corporate leverage --- beyond standard proxies for tangibility. To establish this link, we … redeployability is a particularly important driver of leverage for firms that are likely to face credit frictions (e.g., small …