TY  - JOUR
AU  - Brunnermeier,Markus K.
AU  - Eisenbach,Thomas M.
AU  - Sannikov,Yuliy
TI  - Macroeconomics with Financial Frictions: A Survey
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18102
PY  - 2012
Y2  - May 2012
UR  - http://www.nber.org/papers/w18102
L1  - http://www.nber.org/papers/w18102.pdf
N1  - Author contact info:
Markus K. Brunnermeier
Princeton University
Department of Economics
Bendheim Center for Finance
Princeton, NJ 08540
Tel: 609/258-4050
Fax: 609/258-0771
E-Mail: markus@princeton.edu

Thomas M. Eisenbach
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045
E-Mail: thomas.eisenbach@ny.frb.org

Yuliy Sannikov
Department of Economics
208 Fisher Hall
Princeton University
Princeton, NJ 08544
E-Mail: sannikov@gmail.com
AB  - 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.
ER  -