Many stylized facts of leverage, trading, and asset prices obtain in a frictionless general equilibrium model that features agents' heterogeneity in endowments and time- varying risk preferences. Our model predicts that aggregate debt increases in expansions when asset prices are high,...

Many stylized facts of leverage, trading, and asset prices obtain in a frictionless general equilibrium model that features agents' heterogeneity in endowments and time-varying risk preferences. Our model predicts that aggregate debt increases in expansions when asset prices are high, volatility...

When a nation can finance its investments via foreign-currency denominated debt or domestic-currency claims, what is the optimal capital structure of the nation? Building on the functions of fiat money as both medium of exchange, and store of value like corporate equity, our model connects...

When a nation can finance its investments via foreign-currency denominated debt or domestic-currency claims, what is the optimal capital structure of the nation? Building on the functions of fiat money as both medium of exchange, and store of value like corporate equity, our model connects...

We analyze a model of optimal capital structure and liquidity choice based on a dynamic tradeoff theory for financially constrained firms. In addition to the classical tradeoff between the expected tax advantages of debt and bankruptcy costs, we introduce a cost of external financing for the...