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Corporate Debt Structure and the Financial Crisis

Fiorella De Fiore, Harald Uhlig

NBER Working Paper No. 20730
Issued in December 2014
NBER Program(s):Economic Fluctuations and Growth

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 firm's ability to substitute among alternative instruments of debt finance are important to shield the economy from adverse real effects of a financial crisis.

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Document Object Identifier (DOI): 10.3386/w20730

Published: Fiorella De Fiore & Harald Uhlig, 2015. "Corporate Debt Structure and the Financial Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(8), pages 1571-1598, December. citation courtesy of

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