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Financial Innovations and Macroeconomic Volatility

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  • Jermann, Urban
  • Quadrini, Vincenzo

Abstract

The volatility of US business cycle has declined during the last two decades. During the same period the financial structure of firms has become more volatile. In this paper we develop a model in which financial factors play a key role in generating economic fluctuations. Innovations in financial markets allow for greater financial flexibility and generate a lower volatility of output together with a higher volatile in the financial structure of firms.

Suggested Citation

  • Jermann, Urban & Quadrini, Vincenzo, 2006. "Financial Innovations and Macroeconomic Volatility," CEPR Discussion Papers 5727, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5727
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    References listed on IDEAS

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    More about this item

    Keywords

    business cycle; debt-equity finance; financing constraints;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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