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We test whether financial fluctuations affect firms' decisions, through their impact on banks' cost of funding. We exploit two shocks to Italian bank CDS spreads and equity valuations: the 2007-2009 financial crisis and the 2010-2012 sovereign debt crisis. Using newly available data linking over...
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uncertainty is proxied by the (unobserved) volatility of the structural shocks, and a regime change occurs whenever credit …
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qualitatively: (i) equity premium puzzle (ii) risk-free rate-puzzle (iii) excess volatility puzzle (iv) predictability of aggregate …
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