A standard assumption of structural models of default is that firms' assets evolve exogenously. In this paper, we examine the importance of accounting for investment options in models of credit risk. In the presence of financing and investment frictions, fi rm-level variables that proxy for...

We examine the asset pricing implications of a production economy whose long-term growth prospects are endogenously determined by innovation and R&D. In equilibrium, Rh&D endogenously drives a small, persistent component in productivity which generates long-run uncertainty about economic growth....

Recent fiscal interventions have raised concerns about US public debt, future distortionary tax pressure and long-run growth potential. We explore the long-run implications of public financing policies aimed at short-run stabilization when: (i) agents are sensitive to model uncertainty as in...

The surge in public debt triggered by the financial crisis has raised uncertainty about future tax pressure and economic activity. We examine the asset pricing effects of fiscal policies in a production-based general equilibrium model in which taxation affects corporate decisions by: i)...