Financial Innovations and Macroeconomic Volatility. Urban Jermann & Vincenzo Quadrini Discussion by Wouter J. Denhaan. Excellent new framework Both debt and equity as external finance (typically only one form of external finance)
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Urban Jermann & Vincenzo Quadrini
Discussion by Wouter J. Denhaan
pdoes not show up directly but comes in through
Equity can “undo” the friction on debt financing
Jerman and Quadrini (counter-cyclical):
Levy and Hennessy (pro-cyclical):
Choe, Masulis, and Nanda (pro-cyclical)
What if lending rate increases with debt?
Cyclical exogeonous TFP
Cyclical equity issuance costs
Cyclical required rate of return on risky assets
Jerman and Quadrini Empirical Fact #2
“The debt exposure [debt/gdp] has increased during the last 50 years”
Frank and Goyal Stylized Fact #1
“Over long periods of time, leverage [debt/assets] is stationary”
Frank and Goyal Stylized Fact #2
“Over the past half century, the aggregate market-based leverage ratio has been about 0.32. There have been surprisingly small fluctuations in this ratio from decade to decade.
Jerman and Quadrini Empirical Fact #3
“Equity payouts [dividends minus equity issuance scaled by GDP] are counter-cyclical”
Covas and Denhaan