When government expenditures exceed current tax revenues, the resulting deficit must be financed either by issuing bonds, which imply obligations to levy future taxes, or by creating high-powered money. The choice between money and bonds is often thought to be of great moment for both real and...

This paper examines the detrimental consequences of financial market imperfections for international trade. I develop a heterogeneous-firm model with countries at different levels of financial development and sectors of varying financial vulnerability. Applying this model to aggregate trade...

We study the accumulation of human capital and the behavior of consumption and earnings in a life cycle equilibrium model with endogenous borrowing constraints. Constraints arise endogenously from the inalienability of human capital and the limited punishments that creditors are able to impose...

Why are downturns following episodes of high valuations of firms so severe and long? Why do firms take on high debt when they anticipate high valuations, and underperform subsequently? In this paper, we propose a theory of financing cycles where the control rights to enforce claims in an asset...

This paper investigates the determinants of inequality in human capital with an emphasis on the role of the credit constraints. We develop and estimate a model in which individuals face uninsured human capital risks and invest in education, acquire work experience, accumulate assets and smooth...

An emerging new literature brings unique ideas from corporate finance to the study of international trade and investment. Insights about differences in the development of financial institutions across countries, the role of financial constraints, and the use of internal capital markets are...