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56
CashFlow Maturity and Risk Premia in CDS Markets⇤
, 2012
"... I study the returns of portfolios of Credit Default Swaps of different maturities but the same volatility. I find average returns decrease with maturity. This variation in expected returns is captured by betas with respect to a factor: a portfolio that sells shortmaturity CDSs and buys longmaturit ..."
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I study the returns of portfolios of Credit Default Swaps of different maturities but the same volatility. I find average returns decrease with maturity. This variation in expected returns is captured by betas with respect to a factor: a portfolio that sells shortmaturity CDSs and buys longmaturity ones. This portfolio is a markettiming factor. Its CDSmarket betas are high when the price of CDSmarket risk is high, but low otherwise. Accordingly, a conditional CDS CAPM explains the crosssectional variation in returns by maturity. I embed a conditional CAPM within a structural model of credit risk and show the maturityrelated beta dynamics emerge endogenously.
Endogenous Financial Constraints, Taxes, and Leverage
, 2013
"... We quantify the relative importance of contracting frictions and taxes in shaping firms’ capital structures. We estimate a dynamic contracting model based on limited entrepreneurial commitment. In the model a firm seeks debt financing from an intermediary and is subject to taxation. Because the firm ..."
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We quantify the relative importance of contracting frictions and taxes in shaping firms’ capital structures. We estimate a dynamic contracting model based on limited entrepreneurial commitment. In the model a firm seeks debt financing from an intermediary and is subject to taxation. Because the firm can renege on the financing contract, the optimal contract is selfenforcing, so that financial constraints arise endogenously. We estimate the model’s parameters using data from firms in several industries. We find that taxes have no e↵ect on optimal leverage because they a↵ect neither the lender’s discount factor nor the constraints that allow the contract to be selfenforcing. In contrast, taxes have a sharp deleterious e↵ect It is safe to say that credit supply a↵ects firms ’ financial and real economic decisions. Hundreds of studies have demonstrated that the crosssectional and timeseries patterns in investment, employment, and finance are nearly impossible to reconcile with a world in which external finance is easy to obtain.
Firm Risk and LeverageBased Business Cycles ∗
, 2009
"... I exploit evidence on cyclical fluctuations in the crosssectional dispersion of firmlevel productivity to quantify how much volatility in borrowers ’ leverage ratios can be explained by “secondmoment shocks. ” In a standard financial accelerator model, secondmoment shocks lead to fluctuations in ..."
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I exploit evidence on cyclical fluctuations in the crosssectional dispersion of firmlevel productivity to quantify how much volatility in borrowers ’ leverage ratios can be explained by “secondmoment shocks. ” In a standard financial accelerator model, secondmoment shocks lead to fluctuations in leverage an order of magnitude larger than due to standard “firstmoment” TFP shocks. This result represents substantial improvement over baseline analyses of accelerator models, although it is still five times lower than the volatility of borrowers ’ (firms’) leverage ratios I document using Compustat data. In terms of macroeconomic aggregate quantities, pure dispersion shocks account for a small share of GDP fluctuations in the model, less than five percent. Depending on whether or not secondmoment fluctuations are independent from or bundled with shocks to the mean level of productivity, the model also performs well in explaining either (but not both) the observed acyclicality of borrowers ’ leverage or the observed countercyclicality of firmlevel dispersion. Overall, the mechanism the model articulates is conceptually
the source. Efficient Bailouts?
, 2012
"... ‘Financial frictions and Monetary Policy in an Open Economy ’ for useful comments. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They hav ..."
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‘Financial frictions and Monetary Policy in an Open Economy ’ for useful comments. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
Aggregate external financing and savings wave
, 2015
"... Please view figures electronically, in color. For all but the very largest firms, the aggregate correlation between external finance raised and liquidity accumulated is 0.6. Conditioning on firms that raise external finance, the aggregate correlation increases to 0.74. Motivated by these stylized fa ..."
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Please view figures electronically, in color. For all but the very largest firms, the aggregate correlation between external finance raised and liquidity accumulated is 0.6. Conditioning on firms that raise external finance, the aggregate correlation increases to 0.74. Motivated by these stylized facts, we propose and implement a method for using data describing the way firms use the external finance they raise in order to make inferences about the aggregate level of the cost of external finance. Intuitively, firms which raise costly external finance can invest the proceeds in productive capital assets, or in liquid financial assets with a low physical rate of return. If firms raise costly external finance and allocate some of the funds to liquid assets, either the cost of external finance is relatively low, or the total return to liquidity accumulation, including its value as a hedging asset, is particularly high. We formalize this intuition, and construct and estimate a quantitative, dynamic model of firms ’ financing and savings decisions. We then use the model’s predictions for variation in firm policies and implied cross sectional moments, along with empirical moments from Compustat, to infer the average cost of external finance per dollar raised in the US time series 19802010.
A model of monetary policy and risk premia.
, 2014
"... Abstract We present a dynamic heterogeneousagent asset pricing model in which monetary policy affects the risk premium component of the cost of capital. Risk tolerant agents (banks) borrow from risk averse agents (depositors) and invest in risky assets subject to a reserve requirement. By varying ..."
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Abstract We present a dynamic heterogeneousagent asset pricing model in which monetary policy affects the risk premium component of the cost of capital. Risk tolerant agents (banks) borrow from risk averse agents (depositors) and invest in risky assets subject to a reserve requirement. By varying the nominal interest rate, the central bank affects the spread banks pay for external funding (i.e., leverage), a link that we show has strong empirical support. Lower nominal rates result in increased leverage, lower risk premia and overall cost of capital, and higher volatility. The effects of policy shocks are amplified via bank balance sheet effects. We use the model to implement dynamic interventions such as a "Greenspan put" and forward guidance, and analyze their impact on asset prices and volatility. JEL: E52, E58, G12, G21
Inequality Constraints and Euler Equation Based Solution Methods∗ Forthcoming in the Economic Journal
, 2013
"... Solving dynamic models with inequality constraints poses a challenging problem for two major reasons: dynamic programming techniques are reliable but often slow, while Euler equation based methods are faster but have problematic or unknown convergence properties. This paper attempts to bridge this ..."
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Solving dynamic models with inequality constraints poses a challenging problem for two major reasons: dynamic programming techniques are reliable but often slow, while Euler equation based methods are faster but have problematic or unknown convergence properties. This paper attempts to bridge this gap. I show that a common iterative procedure on the firstorder conditions – usually referred to as time iteration – delivers a sequence of approximate policy functions that converges to the true solution under a wide range of circumstances. These circumstances extend to a large set of endogenous and exogenous state variables as well as a very broad spectrum of occasionally binding constraints. 1.
certifies that this is the approved version of the following dissertation: Three Essays in Macroeconomics Committee:
, 2014
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zbw LeibnizInformationszentrum WirtschaftLeibniz Information Centre for Economics
"... Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle ..."
Investor Borrowing Heterogeneity in a KiyotakiMoore Style Macro Model
, 2014
"... Investor borrowing heterogeneity in a KiyotakiMoore style macro model∗ ..."