A financial friction is a wedge between the return received by providers of financial capital—ultimately, consumers—and the cost of capital paid by businesses and consumers who use capital. I study two frictions. One raises the rental cost of capital to firms and the other raises the rental cost of housing and durable goods to consumers. My focus is on the effects of financial frictions—I take ...

General financial models have become workhorse models in the fields of macroeconomics and finance. These models have been developed and extensively studied by general equilibrium theorists. What makes them so applicable for macroeconomics and finance is the well accepted fact that models with a representative agent and without financial frictions yield equilibrium outcomes that are inconsistent...

It is argued that existing theory implies that financial frictions appear as investment wedges. Since data show that the output declines in the Great Depression were mainly due to the productivity declines, it is also argued that financial frictions may not be the primary cause of the depression. By slightly modifying the model of Carlstrom and Fuerst (1997), I show that financial frictions may...

This paper aims to quantify the extent to which sources of economic uctuations generate in the nancial markets. First, a novel identi cation method is introduced into a Bayesian VAR model in order to identify a nancial type shock which we refer to as a `risk news' shock. We identify the risk news shock in macroeconomic time series for the US, while simultaneously identifying other standard macr...

We review both the theoretical and empirical literature on entrepreneurship and financial frictions, with an emphasis on the heterogeneous and dynamic micro-level implications of financial frictions for macro development.

the financial crisis of 2007 showed that the impact of financial markets on macroeconomic developments is deep. the labor market was affected by financial variables. this paper extends the new keynesian model of a stochastic dynamic general equilibrium (dsge) for the iran economy in three context of an open economy, consider a financial frictions and frictions labor market, the impact of financ...

Financial frictions affect the way in which different macroeconomic series respond to a monetary policy shock. We embed the financial accelerator of Bernanke, Gertler and Gilchrist (1999) into a medium-scale DSGE model and evaluate the relative importance of financial frictions in explaining monetary transmission. Specifically, we apply minimum distance estimation based on impulse responses for...

We propose a tractable model of an informationally inefficient market. We show the equivalence between our model and a substantially simpler model whereby investors face distortive investment taxes depending both on their identity and the asset class. We use this equivalence to assess existing approaches to inferring whether individual investors have informational advantages (“skill”). We also ...

We show theoretically and empirically how real and financial frictions amplify the impact of uncertainty shocks on firms’investment, employment, debt (term structure of debt growth), and cash holding. We start by building a model with real and financial frictions, alongside uncertainty shocks, and show how adding financial frictions to the model roughly doubles the negative impact of uncertaint...

This paper develops a model to assess the quantitative effects of barriers to entry and financial frictions on cross-country income and TFP differences. The main focus is on the interaction between barriers to entry and financial frictions. The model is calibrated to match the firm level statistics for the U.S. economy assuming a perfect financial market. The quantitative analysis shows that ba...