In a model with costly financial intermediation and financial disturbances, credit subsidies are desirable, irrespective of how they are financed. They are especially useful when the zero lower bound constraint is reached. They are superior to other credit policies such as direct lending

We analyze the properties of the natural rate of interest in an economy where nominal debt contracts generate a spread between loan rates and the policy interest rate. In our model, monetary policy has real effect in the flexible-price equilibrium, because it affects the credit spread. Relying...

We present a dynamic general equilibrium model with agency costs, where heterogeneous firms choose among two alternative instruments of external finance - corporate bonds and bank loans. We characterize the financing choice of firrms and the endogenous financial structure of the economy. The...

We present a dynamic general equilibrium model with agency costs, where heterogenous firms choose among two alternative instruments of external finance - coporate bonds and bank loans. We characterize the financing choice of firms and the endogeous financial structure of the economy. The...

"We present a dynamic general equilibrium model with agency costs where: i) firms are heterogeneous in the risk of default; ii) they can choose to raise finance through bank loans or corporate bonds; and iii) banks are more efficient than the market in resolving informational problems. The model...