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Debt and equity issuance are procyclical for most size-sorted firm categories of listed US firms and the procyclicality of equity issuance decreases monotonically with firm size. At the aggregate level, however, the results for equity issuance are not conclusive due to different behavior of the largest firms, especially those in the top one percent. During a deterioration in economic conditions, firms limit the impact of the reduction in external financing on investment by shedding financial assets. This is true for a worsening in aggregate as well as firm-specific conditions. (JEL E32, G32, L11, L25)

A random walk with drift is a good univariate representation of US GDP. This paper shows, however, that US economic downturns have been associated with predictable short‐term recoveries and with changes in long‐term GDP forecasts that are substantially smaller than the initial drop. To detect these predictable changes, it is important to use a multivariate time series model. We discuss reasons why univariate representations can miss key characteristics of the underlying variable such as predictability, especially during recessions.

The interaction of incomplete markets and sticky nominal wages is shown to magnify business cycles even though these two features - in isolation - dampen them. During recessions, fears of unemployment stir up precautionary sentiments which induces agents to save more. The additional savings may be used as investments in both a productive asset (equity) and an unproductive asset (money). But even a small rise in money demand has important consequences. The desire to hold money puts deflationary pressure on the economy, which, provided that nominal wages are sticky, increases wage costs and reduces firm profits. Lower profits repress the desire to save in equity, which increases (the fear of) unemployment, and so on. This is a powerful mechanism which causes the model to behave differently from both its complete markets version, and a version with incomplete markets but without aggregate uncertainty. In contrast to previous results in the literature, agents uniformly prefer non-trivial levels of unemployment insurance. ; The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.

A new algorithm is developed to solve models with heterogeneous agents and aggregate uncertainty that avoids some disadvantages of the prevailing algorithm that strongly relies on simulation techniques and is easier to implement than existing algorithms. A key aspect of the algorithm is a new procedure that parameterizes the cross-sectional distribution, which makes it possible to avoid Monte Carlo integration. The paper also develops a new simulation procedure that not only avoids cross-sectional sampling variation but is also more than ten times faster than the standard procedure of simulating an economy with a large but finite number of agents. This procedure can help to improve the efficiency of the most popular algorithm in which simulation procedures play a key role. ; Cet article développe une nouvelle méthode de résolution des modèles macrodynamiques à agents hétérogènes. Cette méthode propose de directement paramétriser l'évolution de la distribution des richesses suite à des chocs macroéconomiques ou des politiques économiques plutôt que de la simuler. Cette stratégie se révèle non seulement plus rapide mais aussi plus précise que les techniques traditionnelles de simulation de Monte Carlo en évitant tout biais d'échantillonnage. Nous montrons que cette avancée se révèle cruciale pour évaluer les effets redistributifs des fluctuations et des politiques économiques.