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Financial Frictions: Micro versus Macro Volatility

Author

Listed:
  • Renato Faccini
  • Seungcheol Lee
  • Ralph Luetticke
  • Morten O. Ravn
  • Tobias Renkin

Abstract

We argue that consumer credit spreads matter for household choices and that time-varying spreads have important distributional consequences. Studying Danish household data, we show that consumer credit spreads have heterogeneous impact on asset dynamics and consumption choices across the wealth distribution and that time-varying spreads induce a countercyclical marginal propensity to consume. We study a HANK model where banks provide consumer credit and corporate loans. Through countercyclical credit spreads, frictional finance amplifies aggregate shocks and induces consumption inequality. Economies with less leveraged banks experience reduced aggregate volatility but may face higher volatility and lower welfare at the household level.

Suggested Citation

  • Renato Faccini & Seungcheol Lee & Ralph Luetticke & Morten O. Ravn & Tobias Renkin, 2026. "Financial Frictions: Micro versus Macro Volatility," American Economic Review, American Economic Association, vol. 116(2), pages 464-501, February.
    • Handle: RePEc:aea:aecrev:v:116:y:2026:i:2:p:464-501
    DOI: 10.1257/aer.20211219
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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