The financial and economic crisis of 2007-2011 in the U.S. and Europe raises a number of fundamental questions on the role of banks in the financial system. The response so far has resulted in a reregulation of banks and certain systematically important non-bank financial institutions. One...

This paper formulates and tests a model that describes the asset and financing adjustments of U.S. non-financial enterprises over the twentieth century. Asset adjustments change the expected income and operating risk of firms while financing adjustments change the financial risk. To protect debt...

This paper describes a parsimonious macro-finance model where contracts are the mechanism by which differentially risk averse bondholders and stockholders resolve a conflict of interest problem and confront the risks associated with future investment and financing decisions of a representative...

In this paper I develop a model of a debt and equity financed representative firm whose production/investment decisions and financing decisions characterize business cycles. The conflict of interest problem between the differentially risk averse debt and equity investors is resolved with an...