We develop a general equilibrium model in which heterogeneous entrepreneurs produce output in the presence of financing constraints. We model granular uncertainty as the shocks that affect the uncertainty in future idiosyncratic productivity without changing the cross-sectional dispersion of...

This paper develops a general equilibrium model to analyze the interaction between two sectors with differing degree of financial friction in the context of liquidity injections (credit expansion). We show that if too much liquidity is injected into the economy, overheating can build up in the...