In this chapter we: (i) Review the core DSGE workhorse models of financial frictions that existed ahead of the recent financial crisis. (ii) Summarize the recent empirical literature on the history of financial crises. (iii) Summarize the key modelling developments around credit intermediation...

We show how the prospect of disputes over firms' revenue reports promotes debt financing over equity. These findings are presented within a costly state verification model with a risk averse entrepreneur. The prospect of disputes encourages incentive contracts that limit penalties and avoid...

We show how the prospect of disputes over firms' revenue reports promotes debt financing over equity. These findings are presented within a costly state verification model with a risk averse entrepreneur. The prospect of disputes encourages incentive contracts that limit penalties and avoid...

Anticipated stimulus policies enacted perhaps in response to a crisis can motivate precautionary behaviour during the preceding expansion. Ex post stimulus can be ex ante prudential. Prudential fiscal stimulus both speeds up economic recoveries, and prevents crises from occurring in the first...