Financial frictions in macroeconomics

Research output: Contribution to journalArticlepeer-review

Abstract

I review two examples that show how the nature of the financial system can play a central role in shaping the behavior of the aggregate economy. In the first example, variations over time in the cross-sectional dispersion of a productivity shock, which would have no aggregate effect in a frictionless model, produce effects that look like business cycles because of the nature of financial (and nominal) frictions. The second example suggests how a shock originating outside the financial system, which ordinarily might not be expected to have a large aggregate effect, can lead to a systemic banking collapse. The relevance of the examples to the US economy is discussed.

Original languageEnglish (US)
Article number102529
JournalJournal of International Money and Finance
Volume122
DOIs
StatePublished - Apr 2022

Keywords

  • Banking
  • Business cycles
  • Interest rate spread
  • Risk shock
  • Rollover crisis

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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