Miguel H. Ferreira (Cambridge)
"Aggregate Implications of Corporate Lending by Nonfinancial Firms"
Abstract: This paper studies the propagation of productivity and financial shocks in a model where firms can save in both risk-free and/or risky assets. Since the early 1990s, the share of risky securities held by nonfinancial firms increased from 28% of total financial assets to more than 40% by the end of 2017. Making use of the model, I start by arguing that the decrease in the real interest rate since the 1980s generates a rise in the risk premium consistent with the data and can fully account for the observed increase in risky asset holdings. This portfolio reallocation ends up having three distinct impacts on the economy: 1) limits the interest rate passthrough to capital; 2) induces more volatility over the business cycle; 3) decreases capital misallocation. Empirically, I find that, in the Great Recession, firms with a high share of risky financial assets suffered, on average, an investment drop larger than firms with a less risky savings portfolio.
When: Tuesday 24th November 2020 - 4:00pm
Where: Zoom Online Meeting
Reading Group: Macro-INET Seminars