This paper reformulates the well known financial development conjecture (FDC) and supplies some new empirical evidence in its favour. The financial development conjecture, namely, that there exist strong feedback effects between real and financial development, is described in this paper by use...

A civic society is distinguished by its language and its law. In this paper I suggest a theory that links these institutions via the notion of a standard contract. The theory is based upon two observations: that contracts are compiled in words, and that more common (standardized) words are...

This Paper reports a new test of capital structure theories. It uses a filtering technique to identify large investment spikes. We find that the spikes are predominantly financed with debt by large firms and by new equity by small loss-making firms. In the process, firms move significantly away...

The literature on financial imperfections and business cycles has focused on propagation mechanisms. In this paper we model a pure reversion mechanism, such that the economy may converge to a two-period equilibrium cycle. This mechanism confirms that financial imperfections may have a dramatic...

Motivated by the observation that exchange-rate management resembles market-making, we use microstructure theory to conduct a welfare analysis of exchange-rate management, includ-ing the "corner solutions" of a free float and a fixed peg. We show that a policy that smoothes out exchange-rate...

The effect of taxes on interest earned upon capital accumulation and inflation is discussed within an overlapping generations model. It is shown that an increase in such a tax is likely to reduce both the capital stock and the inflation rate. The model is extended to include the case of a small,...

We use a unique data set to analyse how UK banks deal with small to medium size distressed firms both inside and outside bankruptcy. The approach to bankruptcy is contract-based, with lenders and borrowers relying on procedures written into the debt contract, and where the courts are largely...