This article surveys the macroeconomic implications of financial frictions. Financial frictions
lead to persistence and when combined with illiquidity to non-linear amplification effects …

The literature on the effectiveness of macroprudential policy tools is still in its infancy and
has so far provided only limited guidance for policy decisions. In recent years, however …

We study the conditional distribution of GDP growth as a function of economic and financial
conditions. Deteriorating financial conditions are associated with an increase in the …

The outcome of any important macroeconomic policy change is the net effect of forces
operating on different parts of the economy. A central challenge facing policymakers is how …

In the intermediation of loanable funds model of banking, banks accept deposits of pre-
existing real resources from savers and then lend them to borrowers. In the real world, banks …

In this article we present a simple new Keynesian–style model of debt-driven slumps—that
is, situations in which an overhang of debt on the part of some agents, who are forced into …

Abstract The Great Recession seems to be a natural experiment for economic analysis, in
that it has shown the inadequacy of the predominant theoretical framework-the New …

We develop a canonical framework to think about credit market frictions and aggregate
economic activity in the context of the current crisis. We use the framework to address two …

The interaction between capital requirements and monetary policy is assessed by means of
simple rules in a dynamic general equilibrium model featuring a banking sector. In “normal” …

This article studies the full equilibrium dynamics of an economy with financial frictions. Due
to highly nonlinear amplification effects, the economy is prone to instability and occasionally …