We analyze the effects of government spending in a New-Keynesian model with search and matching frictions featuring endogenous growth through learning-by-doing and skill loss from long-term unemployment. We show that medium-run and long-run output and unemployment multipliers are much larger...

In times of fiscal stress, governments fail to adjust fiscal policy in line with the requirements for debt sustainability. Under these circumstances, monetary policy impacts the probability of sovereign default alongside inflation dynamics. Uribe (2006) studies the relationship between inflation...

We measure the causal impact of reductions in benchmark interest rates on the renegotiation and performance of distressed loans, using 2000s subprime adjustable-rate mortgages as a laboratory. Subprime borrowers treated with larger benchmark Libor rate declines benefited from increased...

How should monetary policy respond to changes in financial conditions? In this paper we consider a simple model where firms are subject to idiosyncratic shocks which may force them to default on their debt. Firms' assets and liabilities are denominated in nominal terms and predetermined when...

In this paper, we use accounting fundamentals to measure systematic risk of distress. Our main testable prediction—that this risk increases with the probability of recessionary failure, P(R|F)—is based on a stylized model that guides our empirical analyses. We first apply the lasso method to...

We build a dynamic model to link two empirical patterns:\ the negative failure probability-return relation (Campbell, Hilscher, and Szilagyi, 2008) and the positive distress risk premium-return relation (Friewald, Wagner, and Zechner, 2014). We show analytically and quantitatively that (i)...

We propose a tractable model of a firm's dynamic debt and equity issuance policies in the presence of asymmetric information. Because "investment-grade" firms can access debt markets, managers who observe a bad private signal can both conceal this information and shield shareholders from...

We offer a model and evidence that private debtholders play a key role in setting the endogenous asset value threshold below which corporations declare bankruptcy. The model, in the spirit of Black and Cox (1976), implies that the recovery rate at emergence from bankruptcy on all of the firm's...

During the recent crisis, lags in the transmission mechanism of economic shocks, together with monetary and fiscal policy, made it difficult to assess the evolving dynamics of creditworthiness. As such, developments in financial markets became a key guide for investors and policymakers in...

Corporate bond defaults in different sectors often increase suddenly at roughly similar times, although some sectors see default rates jump earlier than others. This could reflect contagion among sectors-specifically, defaults in one sector leading to credit stresses in other sectors of the...