Financial constraints reshape intermediaries’ portfolio allocation and risk pricing, altering investment across sectors and the subsequent evolution of capital composition.

Using a measure of equity and debt financial constraint, we show that equity frictions are central to understanding the transmission of monetary policy to the corporate sector.

Using consumer credit records, we show that monetary tightening increases household debt, particularly among financially constrained borrowers.

This paper studies a general equilibrium model with heterogeneity in both risk aversion and beliefs about the expected growth rate of the aggregate endowment.