Sticky leverage


Journal Article

We develop a tractable general equilibrium model that captures the interplay between nominal long-term corporate debt, inflation, and real aggregates. We show that unanticipated inflation changes the real burden of debt and, more significantly, leads to a debt overhang that distorts future investment and production decisions. For these effects to be both large and very persistent, it is essential that debt maturity exceeds one period. We also show that interest rate rules can help stabilize our economy.

Full Text

Duke Authors

Cited Authors

  • Gomes, J; Jermann, U; Schmid, L

Published Date

  • December 1, 2016

Published In

Volume / Issue

  • 106 / 12

Start / End Page

  • 3800 - 3828

International Standard Serial Number (ISSN)

  • 0002-8282

Digital Object Identifier (DOI)

  • 10.1257/aer.20130952

Citation Source

  • Scopus