Aggregate External Financing and Savings Waves

NBER Working Paper No. 20442

Issued in September 2014, Revised in September 2016

NBER Program(s):Corporate Finance, Economic Fluctuations and Growth



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 1980-2014.

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Document Object Identifier (DOI): 10.3386/w20442

Published: Andrea L. Eisfeldt & Tyler Muir, 2016. "Aggregate External Financing and Savings Waves," Journal of Monetary Economics, .

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