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Title: Financial Innovations and Macroeconomic Volatility

Author(s): Urban Jermann and Vincenzo Quadrini

Publication Date: June 2006

Keyword(s): business cycle, debt-equity finance and financing constraints

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Jermann, U and Quadrini, V. 2006. 'Financial Innovations and Macroeconomic Volatility'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5727