This paper studies the effects of imperfect risk-sharing between lenders and borrowers on commercial property prices and leverage. The key friction is that agents use different discount rates to evaluate future flows. Eliminating this pecuniary externality generates large reductions in the...

We investigate how changes in industries’ funding costs affect total factor productivity (TFP) growth. Panel regressions with 31 U.S. and Canadian industries between 1991 and 2007, using industries’ dependence on external funding as an identification mechanism, show that higher funding costs...

The paper presents a critique of loanable funds theory by using simple accounting relationships. It is shown that many economists identify saving and the credit supply by interpreting the macroeconomic saving-investment identity as a budget constraint. According to that interpretation, more...

The paper analyses the accounting relationships between the financial and the real economy. It will be shown that accounting can clarify the nature of economic phenomena and be an important building block for economic theory. The paper will argue that there is much confusion about key...

This paper endogenizes the borrowing constraints on capital holdings in an infinite horizon incomplete markets model with production and idiosyncratic risk. In particular, it assumes that households can break their trading arrangements by going into financial autarky, in which case they are...

We measure aggregate productivity loss due to credit market constraints in a model with endogenous borrowing constraints, long-duration bonds, and costly equity payouts. Due to long-duration bonds, the model generates a realistic distribution of credit spreads. We structurally estimate our model...

Financial integration generates macroeconomic spillovers that may require international monetary policy coordination. We show that individual central banks may set nominal interest rates too low or too high relative to the cooperative outcome. We identify three sufficient statistics that...

A popular interpretation of the Rational Expectations/Efficient Markets hypothesis states that, if the hypothesis holds, then market valuations must follow a random walk. This postulate has frequently been criticized on the basis of empirical evidence. Yet the assertion itself incurs what we...

A popular interpretation of the Rational Expectations/Efficient Markets hypothesis states that, if the hypothesis holds, then market valuations must follow a random walk. This postulate has frequently been criticized on the basis of empirical evidence. Yet the assertion itself incurs what we...

We study how financial market efficiency affects a measure of diversification of output across industrial sectors borrowed from the portfolio allocation literature. Using data on sector-level value added for a wide cross section of countries and for various levels of disaggregation, we construct...