Macroeconomics IV (Financial Frictions in Macroeconomics)

We draw on recent developments in microeconomic research on information asymmetries in financial markets and the consequences of market incompleteness to introduce financial frictions in macroeconomics. We pay special attention to the concepts of liquidity and financial fragility, to the consequences of limited risk sharing (market incompleteness), macroeconomic consequences of financial regulation and undercapitalized banks and to the macroeconomic causes and consequences of financial and Balance of Payment crises. Students will be introduced to many concepts from modern theories of financial intermediation and how they can shed light on the macroeconomic importance of financial structure.