Abstract
The paper develops a dynamic general equilibrium model of financial markets
and macroeconomy. In the model, long-term debt is extended to firms in a
primary market and then traded in a secondary market among financiers. Two
financial frictions that are ex-ante and ex-post with respect to the secondary
market trading date raise the cost of debt finance. In stationary equilibrium,
while ex-ante frictions are always counterproductive, financing costs that are
ex-post could promote macroeconomic growth. I show that a model consistent
with the U.S. financial development experience of the last 30 years is likely to
exhibit declining ex-post frictions.
and macroeconomy. In the model, long-term debt is extended to firms in a
primary market and then traded in a secondary market among financiers. Two
financial frictions that are ex-ante and ex-post with respect to the secondary
market trading date raise the cost of debt finance. In stationary equilibrium,
while ex-ante frictions are always counterproductive, financing costs that are
ex-post could promote macroeconomic growth. I show that a model consistent
with the U.S. financial development experience of the last 30 years is likely to
exhibit declining ex-post frictions.
| Original language | English |
|---|---|
| Place of Publication | Tilburg |
| Publisher | EBC |
| Number of pages | 49 |
| Volume | 2014-004 |
| Publication status | Published - 27 Aug 2014 |
Publication series
| Name | EBC Discussion Paper |
|---|---|
| Volume | 2014-004 |
Keywords
- microfoundations of financial frictions
- long-term investment
- secondary markets