Over the last three decades there has been a dramatic increase in the size of the financial sector and in the compensation of financial executives. This increase has been associated with greater risk-taking and the use of more complex financial instruments. Parallel to this trend, the...

We document the cyclical properties of US firms' financial flows and show that equity payout is procyclical and debt payout is countercyclical. We then develop a model with debt and equity financing to explore how the dynamics of real and financial variables are affected by "financial shocks."...

We study a general equilibrium model in which entrepreneurs finance investment with optimal financial contracts. Because of enforceability problems, contracts are constrained efficient.We show that limited enforceability amplifies the impact of technological innovations on aggregate output. More...

In this paper we study how credit shocks, that is, shocks affecting the ability to raise external funds for borrowers, affect macroeconomic fluctuations. A positive credit shock leads to a typical macroeconomic boom, with an expansion in consumption, investment, labor, output and productivity....

Over the last three decades we have observed a dramatic increase in the concentration of income at the very top of the distribution. This increase in income inequality has been especially steep in the managerial occupations in financial industries, where it has often been associated with greater...

analysis shows that innovations that have allowed firms to issue equity more flexibly can plausibly account for the lower output volatility together with the higher volatility in the financial structure of firms.