1932

Abstract

We review macro-finance models featuring nonlinear dynamics that have recently been developed in the literature, including models with funding liquidity constraints, market liquidity frictions, and bank run frictions, and discuss the empirical evidence and challenges of this class of models. We also construct an illustrative model featuring financial frictions and nonlinear dynamics for readers who are unfamiliar with the literature. We solve the model using different solution techniques, including both global and perturbation solution methods, and comprehensively compare the accuracy of these solutions. Within this framework, we highlight that local linearization approximations omit important nonlinear dynamics and yield biased impulse responses.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-financial-110921-112053
2023-11-01
2024-06-13
Loading full text...

Full text loading...

/deliver/fulltext/financial/15/1/annurev-financial-110921-112053.html?itemId=/content/journals/10.1146/annurev-financial-110921-112053&mimeType=html&fmt=ahah

Literature Cited

  1. Ackerberg D, Geweke J, Hahn J. 2009. Comments on “Convergence Properties of the Likelihood of Computed Dynamic Models. .” Econometrica 77:62009–17
    [Google Scholar]
  2. Adrian T, Boyarchenko N. 2017. Liquidity policies and systemic risk. J. Financ. Intermed. 35:B45–60
    [Google Scholar]
  3. Adrian T, Colla P, Shin HS. 2013. Which financial frictions? Parsing the evidence from the financial crisis of 2007 to 2009. NBER Macroecon. Annu. 27:1159–214
    [Google Scholar]
  4. Adrian T, Etula E, Muir T. 2014. Financial intermediaries and the cross-section of asset returns. J. Finance 69:62557–96
    [Google Scholar]
  5. Adrian T, Shin HS. 2010. Liquidity and leverage. J. Financ. Intermed. 19:3418–37
    [Google Scholar]
  6. Adrian T, Shin HS. 2013. Procyclical leverage and value-at-risk. Rev. Financ. Stud. 27:2373–403
    [Google Scholar]
  7. Allen F, Gale D 1998. Optimal financial crises. J. Finance 53:41245–84
    [Google Scholar]
  8. An S, Schorfheide F. 2007. Bayesian analysis of DSGE models. Econom. Rev. 26:2–4113–72
    [Google Scholar]
  9. Aruoba SB, Bocola L, Schorfheide F. 2017. Assessing DSGE model nonlinearities. J. Econ. Dyn. Control 83:C34–54
    [Google Scholar]
  10. Aruoba SB, Cuba-Borda P, Higa-Flores K, Schorfheide F, Villalvazo S. 2021. Piecewise-linear approximations and filtering for DSGE models with occasionally-binding constraints. Rev. Econ. Dyn. 41:96–120
    [Google Scholar]
  11. Bansal R, Yaron A. 2004. Risks for the long run: a potential resolution of asset pricing puzzles. J. Finance 59:41481–509
    [Google Scholar]
  12. Baron M, Xiong W. 2017. Credit expansion and neglected crash risk. Q. J. Econ. 132:2713–64
    [Google Scholar]
  13. Basak S, Cuoco D. 1998. An equilibrium model with restricted stock market participation. Rev. Financ. Stud. 11:2309–41
    [Google Scholar]
  14. Begenau J. 2020. Capital requirements, risk choice, and liquidity provision in a business-cycle model. J. Financ. Econ. 136:2355–78
    [Google Scholar]
  15. Begenau J, Landvoigt T. 2022. Financial regulation in a quantitative model of the modern banking system. Rev. Econ. Stud. 89:41748–84
    [Google Scholar]
  16. Bernanke B, Gertler M. 1989. Agency costs, net worth, and business fluctuations. Am. Econ. Rev. 79:114–31
    [Google Scholar]
  17. Bernanke BS, Gertler M, Gilchrist S 1999. The financial accelerator in a quantitative business cycle framework. Handbook of Macroeconomics, Vol. 1 JB Taylor, M Woodford 1341–93. Amsterdam: Elsevier
    [Google Scholar]
  18. Bianchi J. 2011. Overborrowing and systemic externalities in the business cycle. Am. Econ. Rev. 101:73400–26
    [Google Scholar]
  19. Bianchi J. 2016. Efficient bailouts?. Am. Econ. Rev. 106:123607–59
    [Google Scholar]
  20. Bianchi J, Boz E, Mendoza EG. 2012. Macroprudential policy in a Fisherian model of financial innovation. IMF Econ. Rev. 60:2223–69
    [Google Scholar]
  21. Bianchi J, Liu C, Mendoza EG. 2016. Fundamentals news, global liquidity and macroprudential policy. J. Int. Econ. 99:S2–15
    [Google Scholar]
  22. Bianchi J, Mendoza E. 2018. Optimal time-consistent macroprudential policy. J. Political Econ. 126:2588–634
    [Google Scholar]
  23. Bigio S. 2015. Endogenous liquidity and the business cycle. Am. Econ. Rev. 105:61883–927
    [Google Scholar]
  24. Bocola L. 2016. The pass-through of sovereign risk. J. Political Econ. 124:4879–926
    [Google Scholar]
  25. Boissay F, Collard F, Gali J, Manea C. 2021. Monetary policy and endogenous financial crises NBER Work. Pap. 29602
    [Google Scholar]
  26. Boissay F, Collard F, Smets F. 2016. Booms and banking crises. J. Political Econ. 124:2489–538
    [Google Scholar]
  27. Bolton P, Chen H, Wang N. 2011. A unified theory of Tobin's q, corporate investment, financing, and risk management. J. Finance 66:51545–78
    [Google Scholar]
  28. Bolton P, Chen H, Wang N. 2013. Market timing, investment, and risk management. J. Financ. Econ. 109:140–62
    [Google Scholar]
  29. Bolton P, Wang N, Yang J. 2019. Optimal contracting, corporate finance, and valuation with inalienable human capital. J. Finance 74:31363–429
    [Google Scholar]
  30. Boz E, Mendoza EG. 2014. Financial innovation, the discovery of risk, and the US credit crisis. J. Monet. Econ. 62:1–22
    [Google Scholar]
  31. Brunnermeier MK, Eisenbach TM, Sannikov Y. 2012. Macroeconomics with financial frictions: a survey NBER Work. Pap. 18102
    [Google Scholar]
  32. Brunnermeier MK, Gorton G, Krishnamurthy A. 2012. Risk topography. NBER Macroecon. Annu. 26:1149–76
    [Google Scholar]
  33. Brunnermeier MK, Pedersen LH. 2008. Market liquidity and funding liquidity. Rev. Financ. Stud. 22:62201–38
    [Google Scholar]
  34. Brunnermeier MK, Sannikov Y. 2014. A macroeconomic model with a financial sector. Am. Econ. Rev. 104:2379–421
    [Google Scholar]
  35. Brunnermeier MK, Sannikov Y 2016. Macro, money, and finance: a continuous-time approach. Handbook of Macroeconomics, Vol. 2 JB Taylor, H Uhlig 1497–545. Amsterdam: Elsevier
    [Google Scholar]
  36. Bruno V, Shin HS. 2014. Cross-border banking and global liquidity. Rev. Econ. Stud. 82:2535–64
    [Google Scholar]
  37. Calomiris CW, Gorton G. 1991. The origins of banking panics: models, facts, and bank regulation. Financial Markets and Financial Crises, ed. RG Hubbard 109–74. Chicago: Univ. Chicago Press
    [Google Scholar]
  38. Carlstrom CT, Fuerst TS. 1997. Agency costs, net worth, and business fluctuations: a computable general equilibrium analysis. Am. Econ. Rev. 87:5893–910
    [Google Scholar]
  39. Chari VV, Christiano L, Kehoe PJ. 2008. Facts and myths about the financial crisis of 2008. Work. Pap. 666 Fed. Reserve Bank Minneap.
    [Google Scholar]
  40. Chen H, Dou WW, Kogan L. 2021. Measuring the “dark matter” in asset pricing models. J. Finance. Forthcoming
    [Google Scholar]
  41. Cheng X, Dou WW, Liao Z. 2022. Macro-finance decoupling: robust evaluations of macro asset pricing models. Econometrica 90:2685–713
    [Google Scholar]
  42. Christiano LJ, Eichenbaum MS, Trabandt M. 2015. Understanding the Great Recession. Am. Econ. J. Macroecon. 7:1110–67
    [Google Scholar]
  43. Christiano LJ, Motto R, Rostagno M. 2014. Risk shocks. Am. Econ. Rev. 104:127–65
    [Google Scholar]
  44. Coimbra N, Rey H. 2022. Financial cycles with heterogeneous intermediaries. Rev. Econ. Stud. In press. https://doi.org/10.1093/restud/rdad039
    [Google Scholar]
  45. Cui W, Radde S. 2020. Search-based endogenous asset liquidity and the macroeconomy. J. Eur. Econ. Assoc. 18:52221–69
    [Google Scholar]
  46. Dávila E, Korinek A. 2017. Pecuniary externalities in economies with financial frictions. Rev. Econ. Stud. 85:1352–95
    [Google Scholar]
  47. De Fiore F, Hoerova M, Uhlig H. 2022. Money markets, collateral and monetary policy. Work. Pap. 997 Bank Int. Settl. Basel, Switz.:
    [Google Scholar]
  48. De Fiore F, Uhlig H. 2011. Bank finance versus bond finance. J. Money Credit Bank. 43:71399–421
    [Google Scholar]
  49. Del Negro M, Eggertsson G, Ferrero A, Kiyotaki N. 2017. The great escape? A quantitative evaluation of the Fed's liquidity facilities. Am. Econ. Rev. 107:3824–57
    [Google Scholar]
  50. Di Tella S. 2017. Uncertainty shocks and balance sheet recessions. J. Political Econ. 125:62038–81
    [Google Scholar]
  51. Diamond DW, Dybvig PH. 1983. Bank runs, deposit insurance, and liquidity. J. Political Econ. 91:3401–19
    [Google Scholar]
  52. Dou WW. 2017. Embrace or fear uncertainty: growth options, limited risk sharing, and asset prices Work. Pap. Univ. Pa. Philadelphia:
    [Google Scholar]
  53. Dou WW, Ji Y, Reibstein D, Wu W. 2021. Inalienable customer capital, corporate liquidity, and stock returns. J. Finance 76:1211–65
    [Google Scholar]
  54. Dou WW, Kogan L, Wu W. 2021. Common fund flows: flow hedging and factor pricing Work. Pap. Univ. Pa. Philadelphia:
    [Google Scholar]
  55. Dou WW, Lo AW, Muley A, Uhlig H. 2020. Macroeconomic models for monetary policy: a critical review from a finance perspective. Annu. Rev. Financ. Econ. 12:95–140
    [Google Scholar]
  56. Dou WW, Verdelhan A. 2017. The volatility of international capital flows and foreign assets. Work. Pap. Univ. Pa. Philadelphia:
    [Google Scholar]
  57. Dou WW, Wang W, Wang W. 2022. The cost of intermediary market power for distressed borrowers. Tech. Rep. Wharton School, Univ. Pa. Philadelphia:
    [Google Scholar]
  58. Drechsler I, Savov A, Schnabl P. 2018a. A model of monetary policy and risk premia. J. Finance 73:1317–73
    [Google Scholar]
  59. Drechsler I, Savov A, Schnabl P. 2018b. Liquidity, risk premia, and the financial transmission of monetary policy. Annu. Rev. Financ. Econ. 10:309–28
    [Google Scholar]
  60. Du W, Tepper A, Verdelhan A. 2018. Deviations from covered interest rate parity. J. Finance 73:3915–57
    [Google Scholar]
  61. Dumas B. 1989. Two-person dynamic equilibrium in the capital market. Rev. Financ. Stud. 2:2157–88
    [Google Scholar]
  62. Durdu CB, Mendoza EG. 2006. Are asset price guarantees useful for preventing Sudden Stops? A quantitative investigation of the globalization hazard–moral hazard tradeoff. J. Int. Econ. 69:184–119
    [Google Scholar]
  63. Durdu CB, Mendoza EG, Terrones ME. 2009. Precautionary demand for foreign assets in Sudden Stop economies: an assessment of the New Mercantilism. J. Dev. Econ. 89:2194–209
    [Google Scholar]
  64. Eisfeldt AL. 2004. Endogenous liquidity in asset markets. J. Finance 59:11–30
    [Google Scholar]
  65. Eisfeldt AL, Rampini AA. 2006. Capital reallocation and liquidity. J. Monet. Econ. 53:3369–99
    [Google Scholar]
  66. Elenev V, Landvoigt T, Van Nieuwerburgh S. 2021. A macroeconomic model with financially constrained producers and intermediaries. Econometrica 89:31361–418
    [Google Scholar]
  67. Fang X, Liu Y. 2021. Volatility, intermediaries, and exchange rates. J. Financ. Econ. 141:1217–33
    [Google Scholar]
  68. Fernández-Villaverde J, Rubio-Ramirez JF, Santos MS. 2006. Convergence properties of the likelihood of computed dynamic models. Econometrica 74:193–119
    [Google Scholar]
  69. Frost J, Shin HS, Wierts P. 2020. An early stablecoin? The Bank of Amsterdam and the governance of money. Work. Pap. 902 Bank Int. Settl. Basel, Switz.:
    [Google Scholar]
  70. Gabaix X, Krishnamurthy A, Vigneron O. 2007. Limits of arbitrage: theory and evidence from the mortgage-backed securities market. J. Finance 62:2557–95
    [Google Scholar]
  71. Gabaix X, Maggiori M. 2015. International liquidity and exchange rate dynamics. Q. J. Econ. 130:31369–420
    [Google Scholar]
  72. Gersbach H, Uhlig H. 2007. On the coexistence of banks and markets. Scand. J. Econ. 109:2225–43
    [Google Scholar]
  73. Gertler M, Karadi P. 2011. A model of unconventional monetary policy. J. Monet. Econ. 58:117–34
    [Google Scholar]
  74. Gertler M, Karadi P. 2013. QE 1 vs. 2 vs. 3...: A framework for analyzing large-scale asset purchases as a monetary policy tool. Int. J. Cent. Bank. 9:15–53
    [Google Scholar]
  75. Gertler M, Karadi P. 2015. Monetary policy surprises, credit costs, and economic activity. Am. Econ. J. Macroecon. 7:144–76
    [Google Scholar]
  76. Gertler M, Kiyotaki N 2010. Financial intermediation and credit policy in business cycle analysis. Handbook of Monetary Economics, Vol. 3 BM Friedman, M Woodford 547–99. Amsterdam: Elsevier
    [Google Scholar]
  77. Gertler M, Kiyotaki N. 2015. Banking, liquidity, and bank runs in an infinite horizon economy. Am. Econ. Rev. 105:72011–43
    [Google Scholar]
  78. Gertler M, Kiyotaki N, Prestipino A 2016. Wholesale banking and bank runs in macroeconomic modeling of financial crises. Handbook of Macroeconomics, Vol. 2 JB Taylor, H Uhlig 1345–425. Amsterdam: Elsevier
    [Google Scholar]
  79. Gertler M, Kiyotaki N, Prestipino A. 2019. A macroeconomic model with financial panics. Rev. Econ. Stud. 87:1240–88
    [Google Scholar]
  80. Gilchrist S, Sim JW, Zakrajsek E. 2014. Uncertainty, financial frictions, and investment dynamics NBER Work. Pap. 20038
    [Google Scholar]
  81. Gilchrist S, Zakrajsek E. 2012. Credit spreads and business cycle fluctuations. Am. Econ. Rev. 102:41692–720
    [Google Scholar]
  82. Goldstein I, Pauzner A. 2005. Demand–deposit contracts and the probability of bank runs. J. Finance 60:31293–327
    [Google Scholar]
  83. Gomes J, Jermann U, Schmid L. 2016. Sticky leverage. Am. Econ. Rev. 106:123800–28
    [Google Scholar]
  84. Gomes JF, Schmid L. 2021. Equilibrium asset pricing with leverage and default. J. Finance 76:2977–1018
    [Google Scholar]
  85. Gorton G, Ordoñez G. 2016. Good booms, bad booms. J. Eur. Econ. Assoc. 18:2618–65
    [Google Scholar]
  86. Gourinchas PO, Obstfeld M. 2012. Stories of the twentieth century for the twenty-first. Am. Econ. J. Macroecon. 4:1226–65
    [Google Scholar]
  87. Gromb D, Vayanos D. 2002. Equilibrium and welfare in markets with financially constrained arbitrageurs. J. Financ. Econ. 66:2361–407
    [Google Scholar]
  88. Guerrieri L, Iacoviello M. 2015. OccBin: a toolkit for solving dynamic models with occasionally binding constraints easily. J. Monet. Econ. 70:22–38
    [Google Scholar]
  89. Guvenen F. 2009. A parsimonious macroeconomic model for asset pricing. Econometrica 77:61711–50
    [Google Scholar]
  90. Haddad V, Muir T. 2021. Do intermediaries matter for aggregate asset prices?. J. Finance 76:62719–61
    [Google Scholar]
  91. Hansen LP, Sargent TJ. 2001. Acknowledging misspecification in macroeconomic theory. Rev. Econ. Dyn. 4:3519–35
    [Google Scholar]
  92. Hansen LP, Sargent TJ, Turmuhambetova G, Williams N. 2006. Robust control and model misspecification. J. Econ. Theory 128:145–90
    [Google Scholar]
  93. He Z, Kelly B, Manela A. 2017. Intermediary asset pricing: new evidence from many asset classes. J. Financ. Econ. 126:11–35
    [Google Scholar]
  94. He Z, Krishnamurthy A. 2011. A model of capital and crises. Rev. Econ. Stud. 79:2735–77
    [Google Scholar]
  95. He Z, Krishnamurthy A. 2013. Intermediary asset pricing. Am. Econ. Rev. 103:2732–70
    [Google Scholar]
  96. Holden TD, Levine P, Swarbrick JM. 2020. Credit crunches from occasionally binding bank borrowing constraints. J. Money Credit Bank. 52:2–3549–82
    [Google Scholar]
  97. Holmstrom B, Tirole J. 1997. Financial intermediation, loanable funds, and the real sector. Q. J. Econ. 112:3663–91
    [Google Scholar]
  98. Hu GX, Pan J, Wang J. 2013. Noise as information for illiquidity. J. Finance 68:62341–82
    [Google Scholar]
  99. Jermann U, Quadrini V. 2012. Macroeconomic effects of financial shocks. Am. Econ. Rev. 102:1238–71
    [Google Scholar]
  100. Jiang Z, Krishnamurthy A, Lustig HN. 2019. Dollar safety and the global financial cycle SSRN Work. Pap. 3328808
    [Google Scholar]
  101. Jiménez G, Ongena S, Peydró JL, Saurina J. 2014. Hazardous times for monetary policy: What do twenty-three million bank loans say about the effects of monetary policy on credit risk-taking?. Econometrica 82:2463–505
    [Google Scholar]
  102. Judd KL. 1997. Computational economics and economic theory: Substitutes or complements?. J. Econ. Dyn. Control 21:6907–42
    [Google Scholar]
  103. Kashyap AK, Stein JC. 2000. What do a million observations on banks say about the transmission of monetary policy?. Am. Econ. Rev. 90:3407–28
    [Google Scholar]
  104. Khan A, Thomas JK. 2013. Credit shocks and aggregate fluctuations in an economy with production heterogeneity. J. Political Econ. 121:61055–107
    [Google Scholar]
  105. Kilenthong WT, Townsend RM. 2021. A market-based solution for fire sales and other pecuniary externalities. J. Political Econ. 129:4981–1010
    [Google Scholar]
  106. Kim H, Kim J, Schaumburg E, Sims CA. 2005. Calculating and using second order accurate solutions of discrete time dynamic equilibrium models. Tech. Rep., Dep. Econ., Tufts Univ. Medford, Mass.:
    [Google Scholar]
  107. Kiyotaki N, Moore J. 1997. Credit cycles. J. Political Econ. 105:2211–48
    [Google Scholar]
  108. Kiyotaki N, Moore J. 2005. Liquidity and asset prices. Int. Econ. Rev. 46:2317–49
    [Google Scholar]
  109. Kiyotaki N, Moore J. 2019. Liquidity, business cycles, and monetary policy. J. Political Econ. 127:62926–66
    [Google Scholar]
  110. Kocherlakota NR. 2000. Creating business cycles through credit constraints. Q. Rev. Fed. Res. Bank Minneap. 24:32
    [Google Scholar]
  111. Korinek A, Mendoza EG. 2014. From Sudden Stops to Fisherian deflation: quantitative theory and policy. Annu. Rev. Econ. 6:299–332
    [Google Scholar]
  112. Kurlat P. 2013. Lemons markets and the transmission of aggregate shocks. Am. Econ. Rev. 103:41463–89
    [Google Scholar]
  113. Kyle AS, Xiong W. 2001. Contagion as a wealth effect. J. Finance 56:41401–40
    [Google Scholar]
  114. Longstaff FA, Wang J. 2012. Asset pricing and the credit market. Rev. Financ. Stud. 25:113169–215
    [Google Scholar]
  115. Lorenz F, Schmedders K, Schumacher M. 2020. Nonlinear dynamics in conditional volatility. Work. Pap. Univ. Münster Ger.:
    [Google Scholar]
  116. Lorenzoni G. 2008. Inefficient credit booms. Rev. Econ. Stud. 75:3809–33
    [Google Scholar]
  117. Maggiori M. 2017. Financial intermediation, international risk sharing, and reserve currencies. Am. Econ. Rev. 107:103038–71
    [Google Scholar]
  118. Mankiw NG, Zeldes SP. 1991. The consumption of stockholders and nonstockholders. J. Financ. Econ. 29:197–112
    [Google Scholar]
  119. Mendoza EG. 2010. Sudden stops, financial crises, and leverage. Am. Econ. Rev. 100:51941–66
    [Google Scholar]
  120. Mendoza EG, Quadrini V, Rios-Rull JV. 2009. Financial integration, financial development, and global imbalances. J. Political Econ. 117:3371–416
    [Google Scholar]
  121. Mendoza EG, Rojas E. 2018. Positive and normative implications of liability dollarization for Sudden Stops models of macroprudential policy. IMF Econ. Rev. 67:174–214
    [Google Scholar]
  122. Mendoza EG, Smith KA. 2006. Quantitative implications of a debt-deflation theory of sudden stops and asset prices. J. Int. Econ. 70:182–114
    [Google Scholar]
  123. Miao J, Wang P. 2018. Asset bubbles and credit constraints. Am. Econ. Rev. 108:92590–628
    [Google Scholar]
  124. Midrigan V, Xu DY. 2014. Finance and misallocation: evidence from plant-level data. Am. Econ. Rev. 104:2422–58
    [Google Scholar]
  125. Miftakhova A, Schmedders K, Schumacher M. 2020. Computing economic equilibria using projection methods. Annu. Rev. Econ. 12:317–53
    [Google Scholar]
  126. Miranda-Agrippino S, Rey H. 2020. US monetary policy and the global financial cycle. Rev. Econ. Stud. 87:62754–76
    [Google Scholar]
  127. Moll B. 2014. Productivity losses from financial frictions: Can self-financing undo capital misallocation?. Am. Econ. Rev. 104:103186–221
    [Google Scholar]
  128. Muir T. 2017. Financial crises and risk premia. Q. J. Econ. 132:2765–809
    [Google Scholar]
  129. Nuño G, Thomas C. 2017. Bank leverage cycles. Am. Econ. J. Macroecon. 9:232–72
    [Google Scholar]
  130. Pástor L, Stambaugh RF. 2003. Liquidity risk and expected stock returns. J. Political Econ. 111:3642–85
    [Google Scholar]
  131. Petrosky-Nadeau N, Zhang L, Kuehn LA. 2018. Endogenous disasters. Am. Econ. Rev. 108:82212–45
    [Google Scholar]
  132. Phelan G. 2016. Financial intermediation, leverage, and macroeconomic instability. Am. Econ. J. Macroecon. 8:4199–224
    [Google Scholar]
  133. Pohl W, Schmedders K, Wilms O. 2018. Higher order effects in asset pricing models with long-run risks. J. Finance 73:31061–111
    [Google Scholar]
  134. Pohl W, Schmedders K, Wilms O. 2021. Asset pricing with heterogeneous agents and long-run risk. J. Financ. Econ. 140:3941–64
    [Google Scholar]
  135. Rampini AA, Sufi A, Viswanathan S. 2014. Dynamic risk management. J. Financ. Econ. 111:2271–96
    [Google Scholar]
  136. Rampini AA, Viswanathan S. 2010. Collateral, risk management, and the distribution of debt capacity. J. Finance 65:62293–322
    [Google Scholar]
  137. Rampini AA, Viswanathan S. 2013. Collateral and capital structure. J. Financ. Econ. 109:2466–92
    [Google Scholar]
  138. Rochet JC, Vives X. 2004. Coordination failures and the Lender of Last Resort: Was Bagehot right after all?. J. Eur. Econ. Assoc. 2:61116–47
    [Google Scholar]
  139. Romer CD. 1990. The Great Crash and the onset of the Great Depression. Q. J. Econ. 105:3597–624
    [Google Scholar]
  140. Rouwenhorst KG. 1995. Asset pricing implications of equilibrium business cycle models. Frontiers of Business Cycle Research, Vol. 1 TF Cooley 294–330. Princeton, NJ: Princeton Univ. Press
    [Google Scholar]
  141. Schilling L, Fernández-Villaverde J, Uhlig H. 2020. Central bank digital currency: When price and bank stability collide NBER Work. Pap. 28237
    [Google Scholar]
  142. Schmitt-Grohé S, Uribe M. 2004. Solving dynamic general equilibrium models using a second-order approximation to the policy function. J. Econ. Dyn. Control 28:4755–75
    [Google Scholar]
  143. Schularick M, Taylor AM. 2012. Credit booms gone bust: monetary policy, leverage cycles, and financial crises, 1870–2008. Am. Econ. Rev. 102:21029–61
    [Google Scholar]
  144. Shleifer A, Vishny RW. 1997. The limits of arbitrage. J. Finance 52:135–55
    [Google Scholar]
  145. Smets F, Wouters R. 2007. Shocks and frictions in US business cycles: a Bayesian DSGE approach. Am. Econ. Rev. 97:3586–606
    [Google Scholar]
  146. Townsend RM. 1979. Optimal contracts and competitive markets with costly state verification. J. Econ. Theory 21:2265–93
    [Google Scholar]
  147. Uhlig H. 2010. A model of a systemic bank run. J. Monet. Econ. 57:178–96
    [Google Scholar]
  148. Zetlin-Jones A, Shourideh A. 2017. External financing and the role of financial frictions over the business cycle: measurement and theory. J. Monet. Econ. 92:1–15
    [Google Scholar]
/content/journals/10.1146/annurev-financial-110921-112053
Loading
/content/journals/10.1146/annurev-financial-110921-112053
Loading

Data & Media loading...

Supplementary Data

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error