Using macroand micro-level data, we establish three stylized facts: (1) fluctuations in idiosyncratic uncertainty can have a large effect on aggregate investment; (2) the impact of uncertainty on investment occurs largely through changes in credit spreads; and (3) financial shocks—identified vis-à-vis orthogonal innovations to credit spreads—have a strong effect on investment, irrespective of t...

We develop and calibrate a two-sector, search-matching model of the labor market augmented to incorporate a housing market and a frictional goods market. The labor market is divided into a construction sector and a non-housing sector, and there is perfect mobility of unemployed workers across sectors. In the frictional goods market households, who lack commitment, …nance random consumption oppo...

We examine the investment behavior of a panel of German manufacturing ...rms for the time period from 1992 to 2000. Our methodology is structural and has several steps: First, we identify the pro...tability shocks that move investment demand at the ...rm level. Then, we specify an array of adjustment costs and capital market imperfections possibly in‡uencing optimal ...rm investment response to...

Do …nancial constraints have persistent e¤ects on the creation of businesses, or should we expect that forward-looking individuals always save their way out of credit constraints? This paper studies the interaction between savings and the decision to become an entrepreneur in a multiperiod model with borrowing constraints to answer this question. The model has a simple threshold property: able ...

During the recent U.S. financial crisis, the large decline in economic activity and credit was accompanied by a large increase in the dispersion of growth rates across firms. However, even though aggregate labor and output fell sharply during this period, labor productivity did not. These features motivate us to build a model in which increased volatility at the firm level generates a downturn ...

We develop a two-sector search-matching model of the labor market with imperfect mobility of workers, augmented to incorporate a housing market and a frictional goods market. Homeowners use home equity as collateral to …nance idiosyncratic consumption opportunities. A …nancial innovation that raises the acceptability of homes as collateral raises house prices and reduces unemployment. It also t...

This paper studies how frictions, both real and financial, interact with capital tax policy in a dynamic, general equilibrium model with heterogeneous firms. Comparative statics show that tax policy can have substantially different effects depending upon the frictions present. Analytical and numerical exercises show that accounting for firm heterogeneity is important when evaluating the respons...