We analyze the implications of financial openness to macroeconomic volatility in a small open economy. The volatility of major macroeconomic aggregates shows non-monotonic pattern with respect to the degree of financial openness in the model without domestic financial frictions. The introduction of domestic financial frictions makes the volatility patterns flatter. Our model explains the lack o...

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...

This paper proposes a simple prototype model that describes the complex dynamics of a sophisticated monetary economy. The interaction between the current and intertemporal financial constraints on economic units brings about irregular fluctuations at both micro and macro levels. We use qualitative dynamic analysis and numerical simulations to investigate the interaction between financial fragil...

Building on previous works on business fluctuations, we study the propagation of financial distress in a geographical setting. We model a network of regions, each populated by interacting heterogeneous agents, varying the level of interregional connectivity. Given the recent financial turmoils and the growing literature on the diffusion of financial crises, our aim is to identify patterns of fa...

When do financial markets help in predicting economic activity? With incomplete markets, the link between financial and real economy is statedependent and financial indicators may turn out to be useful particularly in forecasting "tail" macroeconomic events. We examine this conjecture by studying Bayesian predictive distributions for output growth and inflation in the US between 1983 and 2012, ...

Article history: Received 13 January 2011 Received in revised form 7 May 2014 Available online xxxx JEL classification: D51 E20 E32 E63

We study how the 2007-2009 crisis has changed the impact of financial integration on the transmission of international business cycles, focusing on a sample of 20 developed countries between 1978 and 2009. We use a differences-in-differences strategy for identification and investigate the effect of bilateral financial linkages on the co-movement of output, investment, and consumption before and...

Using a new nationally representative survey of financial capability and experience in the UK and Ireland, I investigate the key factors that cause individuals to experience financial distress. In this context, a key area that I focus on is whether individuals’ behavioural traits, such as their capacities for self-control, planning, and patience, affect their ability to stay out of financial tr...

In this paper, we argue that study of the effect of financial development and shocks on aggregate growth volatility will not be informative because they affect growth volatility through its different components. Financial development affects only the business cycle component of volatility and therefore, the effect on total volatility is dependent on its share in total volatility. On the contrar...

Information is “market-consistent” if agents only use market prices to infer the underlying states of the economy. This paper applies this concept to a stochastic growth model with incomplete markets and heterogeneous agents. The economy with market-consistent information can never replicate the full information equilibrium, and there are substantial differences in impulse responses to aggregat...