Business credit lags GDP growth by about one year. This contributes to high leverage during recessions and slow deleveraging. We show that a model in which firms use risky long-term debt replicates this slow adjustment of firm debt. In the model, slow-moving debt has important effects for real...

We introduce long-term debt and a maturity choice into a dynamic model of production, firm financing, and costly default. Long-term debt saves roll-over costs but increases future leverage and default rates because of a commitment problem. The model generates rich distributions of maturity...

Business credit lags GDP growth by about one year. This contributes to high leverage during recessions and slow deleveraging. We show that a model in which firms use risky long-term debt replicates this slow adjustment of firm debt. In the model, slow-moving debt has important effects for real...

A new mechanism is proposed demonstrating how financial frictions can amplify real shocks to the economy. Building on work by Chang (1993), I show within a simple general equilibrium model that the preferences of managers and investors are more aligned in times of high productivity. In an...

This paper studies a model of endogenous bank opacity. Why do banks choose to hide their risk exposure from the public? And should policy makers force banks to be more transparent? In the model, bank opacity is costly because it encourages banks to take on too much risk. But opacity also reduces...

Capital reallocation between firms is procyclical and leads to variations in measured aggregate productivity. In this paper, we ask how much of the cyclical variation in measured productivity is the consequence of capital reallocation. We build a heterogeneous-firm model to study the effects of...