This paper evaluates the role of internal capital markets in business groups for allocating capital to its most productive use. A quantitative model in which business groups arise endogenously as substitutes for imperfect credit markets explains several stylized facts about establishment size...

This paper presents a DGE model in which aggregate price level inertia is generated endogenously by the optimizing behaviour of price-setting firms. All the usual sources of inertia are absent here ie., all firms are simultaneously free to change their price once every period and face no...

Credit supply and demand changes are mostly unobserved, thus identifying completely the transmission of monetary policy through the credit channel is unfeasible. Bank lending surveys by central banks, however, contain reliable quarterly information on changes in loan conditions due to bank, firm...

This paper studies corporate debt structure over the business cycle and its implications for aggregate macroeconomic dynamics. We develop a tractable macro-finance model featuring debt heterogeneity with both secured and unsecured debt. Unlike secured debt, unsecured debt gives the lenders no...

Investment booms and asset "bubbles" are often the consequence of heavily leveraged borrowing and speculations of persistent growth in asset demand. We show theoretically that dynamic interactions between elastic credit supply (due to leveraged borrowing) and persistent credit demand (due to...

We present a model of long-duration collateralized debt with risk of default. Applied to the housing market, it can match the homeownership rate, the average foreclosure rate, and the lower tail of the distribution of home-equity ratios across homeowners prior to the recent crisis. We stress the...

We study the dynamic general equilibrium of an economy where risk averse shareholders delegate the management of the firm to risk averse managers. The optimal contract has two main components: an incentive component corresponding to a non-traded equity position and a variable "salary" component...

We demonstrate that inference from estimated structural News Driven Business Cycle (NDBC) models about the main drivers of fluctuations in macroeconomic variables and asset prices is sensitive to assumptions about the structure of the news shock processes. We show that, when data on asset prices...

This paper develops an RBC model where banks use short-term deposits to provide firms with long-term credit. The demand for long-term credit arises because firms borrow in order to finance their capital stock which they only adjust at infrequent intervals. We show that maturity transformation in...

In this paper we provide a thorough characterization of the asset returns implied by a simple general equilibrium production economy with Chew-Dekel risk preferences and convex capital adjustment costs. When households display levels of disappointment aversion consistent with the experimental...