The Great Recession of 2008 offers a primary example of the important role that fluctuations in credit risk play in the aggregate economy. In this paper we explore this link with a tractable general equilibrium asset pricing model with heterogeneous firms. Our model produces realistic movements...

We develop a tractable general equilibrium model that captures the interplay between nominal long-term corporate debt, inflation, and real aggregates. We show that unanticipated inflation changes the real burden of debt and, more significantly, leads to a debt overhang that distorts future...

We estimate investment policy functions under general assumptions about technology and markets. Policy functions are easy to estimate and summarize the key predictions of any dynamic investment model. Because our method does not rely on Tobin's Q, it does not require information about market...