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Corporate Debt Structure and the Financial Crisis
Author(s) -
DE FIORE FIORELLA,
UHLIG HARALD
Publication year - 2015
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12284
Subject(s) - debt , financial crisis , financial system , flexibility (engineering) , business , structured finance , corporate finance , finance , bond , debt levels and flows , dynamic stochastic general equilibrium , internal debt , economics , monetary economics , monetary policy , macroeconomics , management
We present a DSGE model where firms optimally choose among alternative instruments of external finance. The model is used to explain the evolving composition of corporate debt during the financial crisis of 2008–09, namely, the observed shift from bank finance to bond finance, at a time when the cost of market debt rose above the cost of bank loans. We show that the flexibility offered by banks on the terms of their loans and firms' ability to substitute among alternative instruments of debt finance are important to shield the economy from adverse real effects of a financial crisis.