This paper argues that the investment–savings imbalances of households and companies play an important role in determining the probability that an economy experiences a credit-less recovery, following a recession. The investment–savings gap determines the need for “external” finance of...

We present a DSGE model where firms optimally choose among alternative instruments of external finance. The model is used to explain the evolving composition of corporate debt during the financial crisis of 2008-09, namely the observed shift from bank finance to bond finance, at a time when the...

We argue that in an unreliable enforcement regime, transactions tend to become intermediated through institutions or concentrated among agents bound by some form of private enforcement. Provision of funding shifts from risk capital to debt, and from markets to institutions with long term...