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

Current bankruptcy legislation in many countries tends to follow the US model of Chapter 11, whereby the courts have the authority to stay the contractual rights of the secured creditors. The alternative approach of freedom of contracting whereby the privately negotiated debt contract defines a...

We apply the old concept of financial repression, originally due to Mckinnon (1973) and Shaw (1973), to the Chinese financial system and argue that it might explain the country's current account surplus. In a two-country model, we show that financial repression in one country (China), modeled as...

This article presents one of the most comprehensive studies to date to employ filtering techniques to distinguish between routine and “investment spike” financing. This study records marked differences in how publicly traded US firms finance the two types of investments. The funding of...

We argue that ceteris paribus, introducing a habit that resolves the equity premium puzzle is equivalent to increasing the coefficient of relative risk aversion. Thus, if habit is modeled subject to the constraint that the Arrow-Pratt coefficient of relative risk aversion is held at a constant...

This paper explores the business cycle implications of financial distress and bankruptcy law. We find that due to the presence of financial imperfections the effect of liquidations on the price of capital goods can generate endogenous fluctuations. We show that a law reform that...

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...

In this paper we argue that firms' financial distress should play a greater role in the macroeconomic analysis of the business cycle. We provide a nontechnical account of a general equilibrium model that exhibits financially-driven equilibrium cycles. We show that the empirical evidence is...