Abstract: Private credit has emerged as the fastest growing source of firm financing globally, representing as much as one third of non-investment grade corporate debt in the United States. This paper studies how private credit shapes firm dynamics and credit allocation by constructing a novel database from the largest private credit data sources and U.S. Census microdata. Using a synthetic control identification strategy, we find that private credit induces an up-or-out dynamic for borrowing firms by increasing the likelihood of firm exit but also raising employment and innovation among surviving firms. The gains among survivors are driven by the relaxation of borrowing constraints implying segmentation with other financing sources. The increased likelihood of exit stems from active lender credit allocation rather than ex-ante firm risk. Private credit lenders' industry specialization drives these outcomes, suggesting specialized knowledge improves screening. We develop a structural model to explain this implied segmentation, whereby high-risk, high-reward firms sort into private credit. This sorting emerges as an equilibrium outcome of optimal leverage choice across the firm risk distribution.

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.

with Theodore Naff,  under Census Bureau Project #3106