Taehyun Kim, 03 December 2018

Taehyun Kim of Notre Dame University discusses how financial frictions impacting a firm's ability to maintain its day-to-day operations can amplify shocks. The interview was recorded at CEPR's Third Annual Spring Symposium in April 2018.

Oleg Itskhoki, Benjamin Moll, 05 September 2018

From a neoclassical perspective, export promotion and comparative advantage policies are unambiguously detrimental. This column extends the standard growth model with financial frictions to explore how such policies affect a country’s development trajectory. Results show that the presence of financial frictions opens the door for welfare-improving government interventions in product and factor markets. Optimal development policy interventions feature a pro-business tilt early on, but change towards a more redistributive pro-labour stance as the economy accumulates financial wealth.

Almut Balleer, Nikolay Hristov, Dominik Menno, 24 June 2017

Research into the aggregate effects of financial frictions in the economy generally assume that they do not affect whether (and which) firms adjust prices, something this column argues that should be taken into account. In particular, financial frictions change the composition of firms that reset prices and cause the degree of nominal price rigidity to vary over the business cycle, which has important consequences for how inflation and output respond to aggregate shocks.


The Centre for International Macroeconomic Studies (CIMS) in the School of Economics, University of Surrey will hold a five-day Summer School from 4th-8th September, 2017.

The School will consist of two parallel four-day courses (Foundations of DSGE modelling; Advanced DSGE modelling) and four parallel one-day stand-alone courses on day five (Financial Frictions in DSGE Models; DSGE-VAR Models and Forecasting; Occasionally Binding Constraints and Nonlinear Estimation; Emerging Open Economies). Participants can register for all five days, or for only one of the stand-alone one-day courses.

To apply or for further details visit our website: www.surrey.ac.uk/cimssummercourse


The course will consider alternative macroeconomic frameworks with financial frictions to under-stand financial crisis, business cycles and public policy. There will be an brief historical overview of financial crises and basic financial accelerator models which emphasizes the interaction between borrowing constraint, asset price and aggregate production.

It will then be introduced liquidity constraint to examine the business cycles and monetary policy. Finally, the course will present financial intermediaries and government to study banking crisis, credit policy and macro prudential policy. By developing these frameworks, the training aims to understand the recent financial crisis and the roles of public policies.

Charles Yuji Horioka, Akiko Terada-Hagiwara, 25 January 2014

Corporate saving has sharply increased over the last two decades, but there has been relatively little research on its determinants. This column presents recent work that estimates Asian firms’ cash flow sensitivity of cash. The impact of cash flow on the increase in firms’ cash holdings is positive and statistically significant, and larger and more highly significant for smaller firms. Since smaller firms are more likely to be financially constrained, these results suggest that Asian firms – especially smaller ones – save more when their cash flow increases in order to finance future investments

Yuriy Gorodnichenko, Monika Schnitzer, 08 April 2010

How can poor countries stop playing catch up? The question continues to puzzle economists. This column argues that the innovative and productive activities of domestic firms in emerging markets are inhibited by financial frictions. Financial reforms will be most effective if they target the vulnerable small and young domestic firms and those in the service sector.

Urban Jermann, Vincenzo Quadrini, 29 September 2009

The financial crisis has made it clear that macroeconomic models need to allocate a more prominent role to financial frictions. This column provides a framework where the financial sector can be the “source” of business cycle fluctuations. The model suggests that credit shocks have played an important role in all major recessions experienced by the US economy during the last two and a half decades.

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