To address how technological progress in financial intermediation affects the economy, a costly-state verification framework is embedded into standard growth model. The has two novel ingredients. First, firms differ risk/return combinations that they offer. Second, efficacy of monitoring depends upon amount resources invested activity. A theory firm size results. Undeserving are over-financed, deserving ones under-funded. Technological advance leads to more capital accumulation and...

What determines the technology that a country adopts? While there could be many factors, e¢ ciency of country’s …nancial system may play signi…cant role. To address this question, dynamic contract model is embedded into general equilibrium setting with competitive intermediation. The ability an intermediary to monitor and control cash ‡ows …rm plays important role in …rm’s decision adopt technology. Can such theory help explain

Sovereign debt crises involve restructurings characterized by a mix of face value haircuts and maturity extensions. The prevalence extensions has been hard to reconcile with economic theory. We develop model endogenous restructuring that captures key facts sovereign episodes. While dilution pushes for negative extensions, three factors are important in overcoming the effects generating upon restructurings: income recovery after default, credit exclusion restructuring, regulatory costs book...

Emerging market economies typically exhibit a procyclical fiscal policy: public expenditures rise (fall) in economic expansions (recessions), whereas tax rates bad (good) times. Additionally, the business cycle of these is characterized by countercyclical default risk. In this paper we develop quantitative dynamic stochastic small open economy model with incomplete markets, endogenous policy and sovereign where are optimally procyclical. The also accounts for dynamics other key macroeconomic...

Abstract This article documents and interprets a fact central to the dynamics of informal consumer debt default. We observe that for individuals 60– 90 days late on payments, (i) 85% make payments during next quarter, (ii) 40% reduce their debt. To understand these facts, we develop quantitative model delinquency bankruptcy. Our reproduces suggests an interpretation data in which lenders frequently reset loan terms delinquent borrowers, typically offering partial forgiveness, instead blanket...

The information technology (IT) revolution coincided with the transformation of U.S. unsecured credit market. Households' borrowing increased rapidly and there was an even faster increase in bankruptcy filings. A risk default model asymmetric costly screening is introduced to study this period. When costs are high, design contracts under private prevents some households from a default. As drop, borrow more filings increase. Quantitative exercises suggest that IT may have played important...

Abstract Using proprietary panel data, we show that many U.S. consumers experience financial distress (35% when is defined by having debt in severe delinquency, e.g.) at some point their lives. However, most events are concentrated on a much smaller proportion of persistent trouble: fewer than 10% borrowers account for half all events. These facts can be largely accounted straightforward extension workhorse model unsecured with informal default accommodates simple form heterogeneity time...

How important is financial development for economic development? A costly state verification model of intermediation presented to address this question. The calibrated match facts about the U.S. economy, such as spreads and firm-size distribution years 1974 2004. It then used study international data, using cross-country interest-rate per-capita GDP. analysis suggests a country like Uganda could increase its output by 140 180 percent if it adopt world's best practice in sector. Still,...

Are production factors allocated efficiently across countries? To differentiate misallocation from factor intensity differences, we provide a new methodology to estimate output shares of natural resources based solely on current rent flows data. With this methodology, construct dataset estimates for the large panel countries. In sharp contrast with Caselli and Feyrer (2007), find significant persistent degree physical capital. We also remarkable movement toward efficiency during last 35...

To address how technological progress in financial intermediation affects the economy, a costly-state verification framework is embedded into standard growth model. The has two novel ingredients. First, firms differ risk/return combinations that they offer. Second, efficacy of monitoring depends upon amount resources invested activity. A theory firm size results. Undeserving are over financed, deserving ones under funded. Technological advance leads to more capital accumulation and...

How important is …nancial development for economic development?A costly state veri…cation model of intermediation presented to address this question.The calibrated match facts about the U.S. economy, such as spreads and …rm-size distributions 1974 2004.It then used study international data using cross-country interest-rate per-capita GDPs.The analysis suggests a country like Uganda could increase its output by 116 percent if it adopt world's best practice in sector.Still, amounts only 29 gap...

What determines the technology that a country adopts?While many factors affect technological adoption, efficiency of country's financial system may also play significant role.To address this question, dynamic contract model is embedded into general equilibrium setting with competitive intermediation.The ability an intermediary to monitor and control cash flows firm plays important role in adoption decision.Can such theory help explain differences total factor productivity establishment-size...

Currently U.S. firms hold record amounts of cash. The authors explore cross-sectional variation in cash holdings publicly traded to shed light on the reasons for this recent trend. First, they identify factors that correlate with and then examine evolution these over past decade. Several factors, including research development expenditures idiosyncratic uncertainty, are important accounting differences holdings. However, do not increase time as do; thus, it seems unlikely underlie Aggregate...