Sticky Leverage: Comment

Andrea Ajello, Ander Pérez-Orive and Bálint Szőke
Additional contact information
Ander Pérez-Orive: https://www.federalreserve.gov/econres/ander-perez-orive.htm
Bálint Szőke: https://www.federalreserve.gov/econres/balint-szoke.htm

No 2023-051, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We revisit the role of long-term nominal corporate debt for the transmission of inflation shocks in the general equilibrium model of Gomes, Jermann, and Schmid (2016, henceforth GJS). We show that inaccuracies in the model solution and calibration strategy lead GJS to a model equilibrium in which nominal long-term debt is systematically mispriced. As a result, the quantitative importance of corporate leverage in the transmission of inflation shocks to real activity in their framework is 6 times larger than what arises under the rational expectations equilibrium.

Keywords: corporate leverage; nominal long-term debt; debt overhang; generalized Euler equation (search for similar items in EconPapers)
JEL-codes: E12 E31 E44 E52 G01 G32 G35 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2023-07-26
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2023051pap.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:96650

DOI: 10.17016/FEDS.2023.051

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().