NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Macroeconomics with Financial Frictions: A Survey

Markus K. Brunnermeier, Thomas M. Eisenbach, Yuliy Sannikov

NBER Working Paper No. 18102
Issued in May 2012
NBER Program(s):   AP   CF   EFG   IFM   ME

This article surveys the macroeconomic implications of financial frictions. Financial frictions lead to persistence and when combined with illiquidity to non-linear 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 Pareto improvement. While financial institutions can mitigate frictions, they introduce additional fragility and through their erratic money creation harm price stability.

download in pdf format
   (650 K)

email paper

This paper is available as PDF (650 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18102

Published: “Macroeconomics with Financial Frictions: A Survey” (with Thomas Eisenbach and Yuliy Sannikov), in Daron Acemoglu, Manuel Arellano and Eddie Dekel (eds.), Advances in Economics and Econometrics, Tenth World Congress of the Econometric Society, Vol. II: Applied Economics, Cambridge University Press, New York, 2013, pp. 4-94.

Users who downloaded this paper also downloaded these:
Adrian, Colla, and Shin w18335 Which Financial Frictions? Parsing the Evidence from the Financial Crisis of 2007-9
Ordonez w18360 The Asymmetric Effects of Financial Frictions
Cooper w18377 Debt Fragility and Bailouts
Brunnermeier and Oehmke w18398 Bubbles, Financial Crises, and Systemic Risk
Bansal, Kiku, Shaliastovich, and Yaron w18104 Volatility, the Macroeconomy and Asset Prices
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us