role of credit in the economy by suggesting that the capital structure of the firm was mostly irrelevant. Moreover, the strong and robust correlation between money and real variables found in the empirical literature of the 1960s provided strong support for the view that the main transmission mechanism for monetary policy operates through changes in the cost of capital and their impact on inves...

Shocks to bank lending, risk-taking and securitization activities that are orthogonal to real economy and monetary policy innovations account for more than 30 percent of U.S. output variation. The dynamic effects, however, depend on the type of shock. Expansionary securitization shocks lead to a permanent rise in real GDP and a fall in inflation. Bank lending and risk-taking shocks, in contrast...

The massive losses that banks incurred with the meltdown of the subprime mortgage market have raised concerns about their ability to continue lending to corporations. We investigate these concerns. We find that firms paid higher loan spreads during the subprime crisis. Importantly, the increase in loan spreads was higher for firms that borrowed from banks that incurred larger losses. These resu...

We draw on stylized facts from the finance literature to build a model where altering the relative costs of bank and bond financing changes the entire distribution of firm size, with implications for the aggregate capital stock, output, and welfare. Reducing transactions costs in the bond market increases the output and profits of mid-sized firms at the expense of both the largest and smallest ...

To end a financial crisis, the central bank is to lend freely, against good collateral, at a high rate, according to Bagehot’s Rule. We argue that in theory and in practice there is a missing ingredient to Bagehot’s Rule: secrecy. Re-creating confidence requires that the central bank lend in secret, hiding the identities of the borrowers, to prevent information about individual collateral from ...

How and why do the policy areas covered in World Bank loan conditions change over time across borrowers? We hypothesize that shifts Bank’s economic research priorities influence conditions, even after controlling for country characteristics international political aspects. To test this claim we apply keyword-assisted topic models to analysis of 13,000 close 35,000 papers published between 1985 ...