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Financial frictions in macroeconomic fluctations

  • Vincenzo Quadrini
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    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.

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    Article provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.

    Volume (Year): (2011)
    Issue (Month): 3Q ()
    Pages: 209-254

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    Handle: RePEc:fip:fedreq:y:2011:i:3q:p:209-254:n:v.97no.3
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    1. Hart, O. & Moore, J., 1991. "A Theory of Debt Based on the Inalienability of Human Capital," Working papers 592, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Boz, Emine & Mendoza, Enrique G, 2010. "Financial Innovation, the Discovery of Risk, and the U.S. Credit Crisis," CEPR Discussion Papers 7967, C.E.P.R. Discussion Papers.
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