The Macroeconomics of Firms' Savings

50 Pages Posted: 22 Dec 2011 Last revised: 7 Aug 2012

See all articles by Roc Armenter

Roc Armenter

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Viktoria V. Hnatkovska

University of British Columbia (UBC) - Department of Economics

Date Written: December 14, 2011

Abstract

The U.S. non-financial corporate sector became a net lender vis-a-vis the rest of the economy in the early 2000s. We document this fact in the aggregate and firm-level data. We then develop a structural dynamic model with investment to study the firms' financing decisions. Debt is fiscally advantageous but subject to a no-default borrowing constraint. Equity payouts comove positively with the firm's cash flow. We show firms accumulate financial assets for precautionary reasons, yet value equity as partial insurance against shocks. The calibrated model replicates the large fraction of publicly-traded firms with net savings observed in the period 2000-2007 as well as several other empirical features. Finally we exploit the higher fiscal cost of equity in the 1970s as a test of the theory: we find the model's predictions to line up very well with the data.

Keywords: Corporate savings, debt, equity, dividend taxation

Suggested Citation

Armenter, Roc and Hnatkovska, Viktoria V., The Macroeconomics of Firms' Savings (December 14, 2011). FRB of Philadelphia Working Paper No. 12-1. Available at SSRN: https://ssrn.com/abstract=1975814 or http://dx.doi.org/10.2139/ssrn.1975814

Roc Armenter (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Viktoria V. Hnatkovska

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada

HOME PAGE: http://faculty.arts.ubc.ca/vhnatkovska/

Register to save articles to
your library

Register

Paper statistics

Downloads
130
Abstract Views
668
rank
217,996
PlumX Metrics