IDEAS home Printed from https://ideas.repec.org/a/fip/fedreq/y2011i3qp209-254nv.97no.3.html
   My bibliography  Save this article

Financial frictions in macroeconomic fluctations

Author

Listed:
  • Vincenzo Quadrini

Abstract

The key ideas for adding financial market frictions in general equilibrium models are not new in macroeconomics. However, it is only with the recent crisis that the profession has fully recognized the importance of financial markets for business cycle fluctuations. In this article I review some of the most popular ideas proposed in the literature and I show how the modeling of financial frictions helps us understand several dynamic features of the macroeconomy.

Suggested Citation

  • Vincenzo Quadrini, 2011. "Financial frictions in macroeconomic fluctations," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 97(3Q), pages 209-254.
  • Handle: RePEc:fip:fedreq:y:2011:i:3q:p:209-254:n:v.97no.3
    as

    Download full text from publisher

    File URL: http://www.richmondfed.org/publications/research/economic_quarterly/2011/q3/pdf/quadrini.pdf
    Download Restriction: no

    File URL: http://www.richmondfed.org/publications/research/economic_quarterly/2011/q3/quadrini.cfm
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Oliver Hart & John Moore, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 841-879.
    2. Fabrizio Perri & Vincenzo Quadrini, 2018. "International Recessions," American Economic Review, American Economic Association, vol. 108(4-5), pages 935-984, April.
    3. Markus K. Brunnermeier & Yuliy Sannikov, 2014. "A Macroeconomic Model with a Financial Sector," American Economic Review, American Economic Association, vol. 104(2), pages 379-421, February.
    4. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    5. Francisco Covas & Wouter J. Den Haan, 2012. "The Role of Debt and Equity Finance Over the Business Cycle," Economic Journal, Royal Economic Society, vol. 122(565), pages 1262-1286, December.
    6. Boz, Emine & Mendoza, Enrique G., 2014. "Financial innovation, the discovery of risk, and the U.S. credit crisis," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 1-22.
    7. Emmanuel Farhi & Jean Tirole, 2012. "Bubbly Liquidity," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 678-706.
    8. Jermann, Urban J. & Quadrini, Vincenzo, 2007. "Stock market boom and the productivity gains of the 1990s," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 413-432, March.
    9. Cooley, Thomas F. & Quadrini, Vincenzo, 2004. "Optimal monetary policy in a Phillips-curve world," Journal of Economic Theory, Elsevier, vol. 118(2), pages 174-208, October.
    10. Alberto Martin & Jaume Ventura, 2012. "Economic Growth with Bubbles," American Economic Review, American Economic Association, vol. 102(6), pages 3033-3058, October.
    11. Suarez, Javier & Sussman, Oren, 1997. "Endogenous Cycles in a Stiglitz-Weiss Economy," Journal of Economic Theory, Elsevier, vol. 76(1), pages 47-71, September.
    12. Gilchrist, Simon & Yankov, Vladimir & Zakrajsek, Egon, 2009. "Credit market shocks and economic fluctuations: Evidence from corporate bond and stock markets," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 471-493, May.
    13. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March.
    14. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    15. Nobuhiro Kiyotaki & Gauti Eggertsson & Andrea Ferrero & Marco Del Negro, 2010. "The Great Escape? A Quantitative Evaluation of the Fed’s Non-Standard Policies," 2010 Meeting Papers 113, Society for Economic Dynamics.
    16. Pengfei Wang & Yi Wen, 2010. "Hayashi meets Kiyotaki and Moore: a theory of capital adjustment costs," Working Papers 2010-037, Federal Reserve Bank of St. Louis.
    17. Coen-Pirani, Daniele, 2005. "Margin requirements and equilibrium asset prices," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 449-475, March.
    18. Zheng Liu & Pengfei Wang & Tao Zha, 2013. "Land‐Price Dynamics and Macroeconomic Fluctuations," Econometrica, Econometric Society, vol. 81(3), pages 1147-1184, May.
    19. Chen, Kaiji & Song, Zheng, 2013. "Financial frictions on capital allocation: A transmission mechanism of TFP fluctuations," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 683-703.
    20. Jianjun Miao & PENGFEI WANG, 2010. "Credit Risk and Business Cycles," Boston University - Department of Economics - Working Papers Series WP2010-033, Boston University - Department of Economics.
    21. Enrique G. Mendoza, 2010. "Sudden Stops, Financial Crises, and Leverage," American Economic Review, American Economic Association, vol. 100(5), pages 1941-1966, December.
    22. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:fip:fedreq:y:2011:i:3q:p:209-254:n:vol.97no.3 is not listed on IDEAS
    2. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95, June.
    3. Larin, Benjamin, 2016. "Bubble-driven business cycles," Working Papers 143, University of Leipzig, Faculty of Economics and Management Science.
    4. Felipe Schwartzman, 2012. "When do credit frictions matter for business cycles?," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 98(3Q), pages 209-230.
    5. Alessandri, Piergiorgio & Mumtaz, Haroon, 2019. "Financial regimes and uncertainty shocks," Journal of Monetary Economics, Elsevier, vol. 101(C), pages 31-46.
    6. Shirai, Daichi, 2016. "Persistence and Amplification of Financial Frictions," MPRA Paper 72187, University Library of Munich, Germany.
    7. Christopher Otrok & Andrew Foerster & Alessandro Rebucci & Gianluca Benigno, 2017. "Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime Switching Approach," 2017 Meeting Papers 572, Society for Economic Dynamics.
    8. Larin, Benjamin, 2016. "A Quantitative Model of Bubble-Driven Business Cycles," VfS Annual Conference 2016 (Augsburg): Demographic Change 145817, Verein für Socialpolitik / German Economic Association.
    9. Helbling, Thomas & Huidrom, Raju & Kose, M. Ayhan & Otrok, Christopher, 2011. "Do credit shocks matter? A global perspective," European Economic Review, Elsevier, vol. 55(3), pages 340-353, April.
    10. Beck, Thorsten & Colciago, Andrea & Pfajfar, Damjan, 2014. "The role of financial intermediaries in monetary policy transmission," Journal of Economic Dynamics and Control, Elsevier, vol. 43(C), pages 1-11.
    11. Berrak Bahadir & Inci Gumus, 2021. "House Prices, Collateral Effects and Sectoral Output Dynamics in Emerging Market Economies," Working Papers 2105, Florida International University, Department of Economics.
    12. Anton Korinek & Enrique G. Mendoza, 2013. "From Sudden Stops to Fisherian Deflation: Quantitative Theory and Policy Implications," NBER Working Papers 19362, National Bureau of Economic Research, Inc.
    13. Hirano, Tomohiro & Inaba, Masaru & Yanagawa, Noriyuki, 2015. "Asset bubbles and bailouts," Journal of Monetary Economics, Elsevier, vol. 76(S), pages 71-89.
    14. Javier Bianchi & Enrique G. Mendoza, 2018. "Optimal Time-Consistent Macroprudential Policy," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 588-634.
    15. Lindé, Jesper & Smets, Frank & Wouters, Rafael, 2016. "Challenges for Central Banks´ Macro Models," Working Paper Series 323, Sveriges Riksbank (Central Bank of Sweden).
    16. Hartwig, Benny & Meinerding, Christoph & Schüler, Yves, 2020. "Identifying indicators of systemic risk," Discussion Papers 33/2020, Deutsche Bundesbank.
    17. Hideaki Hirata & M. Ayhan Kose & Christopher Otrok & Marco E Terrones, 2013. "Global House Price Fluctuations: Synchronization and Determinants," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 119-166.
    18. Ai, Hengjie & Li, Kai & Yang, Fang, 2020. "Financial intermediation and capital reallocation," Journal of Financial Economics, Elsevier, vol. 138(3), pages 663-686.
    19. Cesa-Bianchi, Ambrogio, 2013. "Housing cycles and macroeconomic fluctuations: A global perspective," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 215-238.
    20. Gersbach, Hans & Rochet, Jean-Charles, 2017. "Capital regulation and credit fluctuations," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 113-124.
    21. Ekaterina Pirozhkova, 2017. "Financial frictions and robust monetary policy in the models of New Keynesian framework," BCAM Working Papers 1701, Birkbeck Centre for Applied Macroeconomics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedreq:y:2011:i:3q:p:209-254:n:v.97no.3. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/frbrius.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: https://edirc.repec.org/data/frbrius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.