This paper compares the equilibrium dynamics of an economy facing an aggregate collateral constraint on external debt … to the dynamics of an economy facing a collateral constraint imposed at the level of each individual agent. The aggregate … collateral constraint is intended to capture an environment in which foreign investors base their lending decisions predominantly …

The termination of a representative financial firm due to excessive leverage may lead to substantial bankruptcy costs … liquidation and the associated deadweight costs. It is shown that the optimal taxation policy to finance such transfers exhibits …

solvent (have more "collateral"), the deadweight agency costs of investment finance are lower. This model of investment …Bad economic times are typically associated with a high incidence of financial distress, e.g., insolvency and … finance is then embedded in a dynamic macroeconomic setting. We show that, first, since reductions in collateral in bad times …

We examine how collateral affects the cost of debt capital. Theories based on borrower moral hazard and limited … pledgeable income predict that collateral increases the availability of credit and reduces its price. Testing these theories is … complicated by the very selection problem which they imply: creditors will demand collateral precisely from those borrowers who …

, we find that countries with stronger legal rights for borrowers and lenders (through collateral and bankruptcy laws …

Do bankrupt firms impose negative externalities on their non-bankrupt competitors? We propose and analyze a collateral … channel in which a firm's bankruptcy reduces collateral values of other industry participants, thereby increasing the cost of … external debt finance industry wide. To identify this collateral channel, we use a novel dataset of secured debt tranches …

theory of debt holds: optimal debt equates the marginal tax shield and the marginal expected cost of default. Contrary to … optimal leverage ratio when the tradeoff theory holds …

We study the Ramsey policy problem in an economy in which firms face a collateral constraint. Issuing more public debt … alleviates this friction by increasing the aggregate quantity of collateral. In so doing, however, the issuance of more debt also …