Fiscal, Monetary, and Financial Interactionsin Dynamic General Equilibrium

This paper proposes a model that links households and firms, as usual, by markets forfactors and goods and, additionally, by a banking sector that channels households’funds to firms and eliminates idiosyncratic risk. In equilibrium, agency costs and taxbenefits of corporate debt are equalizing each other, which renders an institutionallybased explanation of financial structure. Adjustment of corporate finance adds tothe ordinary savings channel of fiscal and monetary policy.[...]