Abstract: We study the impact of the emergence of private credit on firm dynamics. Using a novel merged database of private credit deals and U.S. Census microdata, we show that borrowing firms are typically mature, larger than the median U.S. firm but smaller than bank financed firms and more concentrated in intangible intensive industries. We find through a synthetic control identification strategy that firms experience an up-or-out dynamic after receiving private credit: higher growth and innovation alongside increased exit likelihood. These baseline effects can be explained by private credit's industry specialization and use of contingent loan features, which allow it to reach and guide smaller and younger borrowing constrained firms while exiting underperformers more quickly and efficiently. This positions private credit as a distinct financing source across the debt-equity spectrum in the life cycle of firms, sitting between the industry focused equity firms rely on early on and the general debt they transition to later. We develop a structural model of heterogeneous firms and dual lenders to explain this implied segmentation between private credit and other lenders, whereby not only binding regulation but also optimal leverage choices generate an equilibrium sorting of high-risk, high-reward firms into private credit. 

Abstract: Through a structural principal-agent model, the paper explains the determinants for the rise of private debt and its segmentation in the corporate loan market in the context of the overall evolution of firm lending since the Great Financial Crisis. It argues based on developed theoretical propositions that private debt lenders finance firms that have a size between those of direct bank lending and syndicated lending due to both limitations in accessing syndicated markets due to firm moral hazard concerns and bank marginal costs associated with balance sheet lending. Through a calibration of the model, the paper  shows that the joint increase in these margins can explain both the rise of private debt and the evolution of the distribution of loan and firm sizes to which each of these lenders has provided liquidity services since the Great Financial Crisis.

Abstract: We revisit the Friedman-Schwartz vs. Tobin debate about the Federal Reserve's role in the Great Depression by using modern econometric and quantitative-modeling tools. We calibrate a general equilibrium model with a banking sector and an interbank market, building off Bianchi and Bigio (2022). Our model offers novel contributions to the literature through its banking-focused approach that interconnects money, credit, and output. This framework allows us to leverage aggregate banking data from the era, including interbank rates, to examine the Federal Reserve's policy pass-through into the aggregate economy. The model allows us to weigh the relative importance of various shocks affecting banks and the economy during the period. It is well-suited for conducting counterfactual analyses of policies proposed in Friedman and Schwartz's "A Monetary History of the United States, 1867-1960," particularly an expansion of discount window lending, while accounting for the constraints imposed by the gold standard.