Credit market frictions and capital structure dynamics

Interaction of Labor and Credit Market Frictions: A Theoretical and Empirical Analysis

In this paper we investigate macroeconomic dynamics in the presence of frictions in both labor and credit markets. On the basis of the macroeconomic model in Merz (1995) with labor market frictions and capital accumulation, our paper offers an extension to frictions in credit markets which, analogously, are modeled as a search-and-matching process. Using the Merz model as limit case, we conside...

Online appendix to: Credit market frictions and capital structure dynamics

Search Frictions in Physical Capital Markets as a Propagation Mechanism

We build a Dynamic General Equilibrium model with search frictions for the allocation of physical capital and investigate its implications for the business cycle. While the model is in principle capable of generating substantial internal propagation to small exogenous shocks, the quantitative effects are modest once we calibrate the model to fit firm-level capital flows. We then extend the mode...

Financial Frictions, Sudden Stops, and the External Capital Structure of Emerging Markets

This paper argues that credit frictions and asset trading costs signi cantly increase the probability of a Sudden Stop in the early stages of nancial globalization, and that this in turn, signi cantly alters the long-run external capital structure of emerging market economies. Upon opening the capital account, domestic agents have an incentive to accumulate debt and sell domestic equity in orde...

Bank Loan Supply, Lender Choice, and Corporate Capital Structure

Do credit market conditions affect corporate capital structures? In an attempt to answer this question, I study two natural experiments that affect corporate access to bank credit: the 1961 expansion of bank credit due to the emergence of the market for CDs, and the contraction associated with the 1966 credit crunch. I document several capital structure reactions to these changes in credit mark...