within its assets, faces an associated intermediation cost and, via leverage, provides a risk-free asset to h …, making financial leverage state-dependent and counter-cyclical. We study how this mechanism endogenously channels … amplification of consumption and mitigation of output fluctuations. In equilibrium, financial sector leverage also determines …

This paper studies the impact of financial sector size and leverage on business cycles and risk-free rates dynamics. We … by pooling the idiosyncratic risks of their investment activities. We find that leverage amplifies variations of …