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.

Abstract: Across the developed world, private credit has emerged as the fastest growing alternative source of financing, growing from less than 10% to nearly one-third of non-investment grade firm debt in the United States. Yet the exact nature of borrowing firms and the impact on firm dynamics from private credit remains unknown, leaving critical questions about its role within the structure of the financial system and financial stability unanswered. This paper addresses both using a novel database merging the largest private credit deal database with U.S. Census microdata. Borrowing firms are typically mature and larger than the median U.S. firm, and concentrated in intangible intensive industries. Using a synthetic control identification strategy, we document a fundamental tradeoff: private credit raises firm employment and innovation while simultaneously increasing firm exit likelihood. These effects are driven by a relaxation of financing constraints rather than substitution away from other financing sources, with elevated exit risk reflecting tighter creditor control. The mechanism enabling this relaxation is industry specialization whereby concentrating in a focused set of sectors allows them to extend credit where other financing sources cannot.

with Theodore Naff,  under Census Bureau Project #3106