Aggregate external financing and savings waves

Andrea L. Eisfeldt and Tyler Muir

Journal of Monetary Economics, 2016, vol. 84, issue C, 116-133

Abstract: US data display aggregate external financing and savings waves. Firms can allocate costly external finance to productive capital, or to liquid assets with low physical returns. If firms raise costly external finance and accumulate liquidity, either the cost of external finance is relatively low or the total return to liquidity accumulation, including its shadow value as future internal funds, is particularly high. We formalize this intuition by estimating a dynamic model of firms׳ financing and savings decisions, and use our model along with firm level data to construct an empirical estimate of the average cost of external finance from 1980 to 2014.

Keywords: Financial frictions; Business cycles; Financial shocks; Cost of external finance; Cash; Corporate saving (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (45)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:84:y:2016:i:c:p:116-133

DOI: 10.1016/j.jmoneco.2016.10.002

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