This paper investigates how financial market imperfections and nominal rigidities interact. Based on new firm-level evidence for Germany, we document that financially constrained firms adjust prices more often than their unconstrained counterparts. In particular, financially constrained firms do...

A growing strand of literature argues that the financial cycle is considerably longer and larger than the business cycle and that its importance is increasing over time. This paper proposes an empirical approach which is suitable to test these hypotheses. We parametrically estimate the whole...

Bankruptcy legislation has important welfare effects on the aggregate economy through effects on prices of and access to credit. Policy makers face a trade-off between insuring individuals against adverse shocks and providing incentives to repay debt. While the U.S. regime has a strong insurance...

We develop a dynamic recursive model where political and economic decisions interact, to study how excessive debt-GDP ratios affect political sustainability of prudent fiscal policies. Rent seeking groups make political decisions - to cooperate (or not) - on the allocation of fiscal budgets...

The massive decline in international trade in 2008/09 is often attributed to the global deterioration in financial conditions after the bankruptcy of a US investment bank, Lehman Brothers. This paper examines the association between external finance and firm activity in Germany in more detail....

This paper analyses the long-run effects of financialisation and of the recent financial and economic crises for 15 countries. In order to provide a theoretical framework, we first outline three types of regimes under the conditions of financialisation, namely a debtled private demand boom, an...

This paper contributes to the debate of whether central banks can \lean against the wind" of emerging stock or house price bubbles. Against this background, the paper evaluates if new advances in real-time bubble detection, as brought forward by Phillips et al. (2011), can timely detect bubble...

The monetary transmission mechanisms have influence on saving and investment decisions of firms and households by affecting their balance sheets. This study examines the effects of monetary policy through the balance sheet channel (also known as 'financial accelerator'), which affects net worth,...

In this paper, we study the determinants of credit risk in the Greek banking sector. Credit risk is related to bank asset quality and considered responsible for bank failures. In this context, we investigate how loan quality can be explained by accounting and macroeconomic factors. Aggregate...

Macroeconomic models that are based on either the rational expectations hypothesis (REH) or behavioral considerations share a core premise: All future market outcomes can be characterized ex ante with a single overarching probability distribution. This paper assesses the empirical relevance of...