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Macroeconomic implications of financial imperfections: a survey

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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.

Document Information

Document Type Paper
Author Stijn Claessens; M. Ayhan Kose
Year of Publication 2017
Publisher Bank for International settlements
Number of Pages 124 pp.
Region / Country Global /
Primary Language English (en)
Keywords Asset Price, Financial Accelerator, Financial Linkages, International Linkages, Liquidity
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