Resource title

Bank finance versus bond finance: what explains the differences between US and Europe?

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Resource description

We present a dynamic general equilibrium model with agency costs, where heterogenous firms choose among two alternative instruments of external finance - coporate bonds and bank loans. We characterize the financing choice of firms and the endogeous financial structure of the economy. The calibrated model is used to address questions such as: What explains differences in the financial structure of the US and the euro area? What are the implications of these differences for allocations? We find that a higher share of bank finance in the euro area relative to the US is due to lower availability of public information about firms' credit worthiness and to higher efficiency of banks in acquiring this informations. We also quantify the effect of differences in the financial structure on per-capita GDP.

Resource author

Fiorella De Fiore, Harald Uhlig

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25061

Resource license

Adapt according to the presented license agreement and reference the original author.