Macroeconomic Implications of Financial Imperfections : A Survey
This paper surveys the theoretical and empirical literature on the macroeconomic implications of financial imperfections. It focuses on two major channels through which financial imperfections can affect macroeconomic outcomes. The first channel, w...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/336871511879910570/Macroeconomic-implications-of-financial-imperfections-a-survey http://hdl.handle.net/10986/28921 |
| Summary: | This paper surveys the theoretical and
empirical literature on the macroeconomic implications of
financial imperfections. It focuses on two major channels
through which financial imperfections can affect
macroeconomic outcomes. The first channel, which operates
through the demand side of finance and is captured by
financial accelerator-type mechanisms, describes how changes
in borrowers' balance sheets can affect their access to
finance and thereby amplify and propagate economic and
financial shocks. The second channel, which is associated
with the supply side of finance, emphasises the implications
of changes in financial intermediaries' balance sheets
for the supply of credit, liquidity and asset prices, and,
consequently, for macroeconomic outcomes. These channels
have been shown to be important in explaining the linkages
between the real economy and the financial sector. That
said, many questions remain. |
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