Aggregate External Financing and Savings Waves

Eisfeldt, Andrea L.; Muir, Tyler

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Aggregate External Financing and Savings Waves

Journal of Monetary Economics, Vol. 84, No. 1, 2016

34 Pages Posted: 7 Oct 2018

See all articles by Andrea L. Eisfeldt

Tyler Muir

University of California, Los Angeles (UCLA) - Anderson School of Management; National Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written: October 10, 2016

Abstract

US data display aggregate external financing and savings waves. Firms can allocate costly external finance to productive capital, or to liquid assets with low physical returns. If firms raise costly external finance and accumulate liquidity, either the cost of external finance is relatively low or the total return to liquidity accumulation, including its shadow value as future internal funds, is particularly high. We formalize this intuition by estimating a dynamic model of firms' financing and savings decisions, and use our model along with firm level data to construct an empirical estimate of the average cost of external finance from 1980 to 2014.

Keywords: Cost of External Finance, Issuance Waves, Cash, Business Cycles

Suggested Citation: Suggested Citation

Eisfeldt, Andrea L. and Muir, Tyler, Aggregate External Financing and Savings Waves (October 10, 2016). Journal of Monetary Economics, Vol. 84, No. 1, 2016, Available at SSRN: https://ssrn.com/abstract=3249585