The macroeconomics of money market freezes

  title={The macroeconomics of money market freezes},
  author={Max Bruche and CEMFI and Javier Su{\'a}rez},
This paper proposes a tractable general equilibrium model that captures the role of money markets in providing structural funding to some banks. We show that a relatively modest rise in counterparty risk can make these markets freeze, causing severe distortions to the aggregate allocation of credit. The model allows us to evaluate the impact of a solvency crisis on standard macroeconomic variables such as interest rates, wages, and GDP, as well as on other aggregates especially relevant in a… CONTINUE READING
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