Abstract
External finance, internal frictions, and small developed economies
SONOMA develops a small open economy model in which domestic corporate debt and equities coexist and are affected by shocks to external credit and equity markets. The empirical analysis shows that both external debt and equity shocks matter for domestic economic fluctuations, corporate leverage, and net foreign asset positions.
The model reproduces facts about asset prices, financial flows, economic activity, leverage, and the distinct behavior of net external debt and equity.
