Macroeconomics with Financial Frictions : A Survey ∗

  title={Macroeconomics with Financial Frictions : A Survey ∗},
  author={Markus K. Brunnermeier and Thomas Eisenbach and Yuliy Sannikov},
This article surveys the macroeconomic implications of financial frictions. Financial frictions lead to persistence and when combined with illiquidity to nonlinear amplification effects. Risk is endogenous and liquidity spirals cause financial instability. Increasing margins further restrict leverage and exacerbate downturns. A demand for liquid assets and a role for money emerges. The market outcome is generically not even constrained efficient and the issuance of government debt can lead to a… CONTINUE READING
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