Brunnermeier, Markus K.; Sannikov, Yuliy - Nationale Bank van België/Banque national de Belqique (BNB) - 2012
This paper studies the full equilibrium dynamics of an economy with financial frictions. Due to highly non-linear amplification effects, the economy is prone to instability and occasionally enters volatile episodes. Risk is endogenous and asset price correlations are high in down turns. In an...