This paper analyzes the effects of a change in a small but timevarying "disaster risk" à la Gourio (2012) in a New Keynesian model. In a real business cycle framework, the disaster risk has been successful in replicating observed moments of equity premia. However, responses of macroeconomic variables critically depend on the value of the elasticity of intertemporal substitution (EIS). In particular, we show here that an increase in the probability of disaster causes a recession only in case of an EIS larger than unity, which may be arbitrarily large. Nevertheless, we also find that incorporating sticky prices allows to conciliate recessionary effects of the disaster risk with a plausible value of the EIS. A higher disaster risk is then also associated with an increase in the discount factor and with deflation, making it consistent with the preference shock literature (Christiano et al., 2011).

This paper analyzes the effects of a change in a small but timevarying "disaster risk" à la Gourio (2012) in a New Keynesian model. In a real business cycle framework, the disaster risk has been successful in replicating observed moments of equity premia. However, responses of macroeconomic variables critically depend on the value of the elasticity of intertemporal substitution (EIS). In particular, we show here that an increase in the probability of disaster causes a recession only in case of an EIS larger than unity, which may be arbitrarily large. Nevertheless, we also find that incorporating sticky prices allows to conciliate recessionary effects of the disaster risk with a plausible value of the EIS. A higher disaster risk is then also associated with an increase in the discount factor and with deflation, making it consistent with the preference shock literature (Christiano et al., 2011).

We provide a crosscountry study of the business cycle behavior of corporate debt structure for twenty five countries over the period 1989-2013. The substitution of bonds for loans, widely described during the Great Recession, is a general pattern of recoveries. Economies with high bond share and important bond-loan substitution recover from the recessions faster. The interaction between economic recoveries and corporate debt structure is stronger in recessions with banking crisis than in normal récessions. A theoretical model is developed to explain how the bond-loan substitution softens the recession costs.

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We provide a crosscountry study of the business cycle behavior of corporate debt structure for twenty five countries over the period 1989-2013. The substitution of bonds for loans, widely described during the Great Recession, is a general pattern of recoveries. Economies with high bond share and important bond-loan substitution recover from the recessions faster. The interaction between economic recoveries and corporate debt structure is stronger in recessions with banking crisis than in normal récessions. A theoretical model is developed to explain how the bond-loan substitution softens the recession costs.