Macroeconomic Implications of Financial Imperfections: a Survey
BIS Working Papers No 677 Macroeconomic implications of financial imperfections: a survey by Stijn Claessens and M Ayhan Kose Monetary and Economic Department November 2017 JEL classification: D53, E21, E32, E44, E51, F36, F44, F65, G01, G10, G12, G14, G15, G21 Keywords: asset prices, balance sheets, credit, financial accelerator, financial intermediation, financial linkages, international linkages, leverage, liquidity, macrofinancial linkages, output, real-financial linkages BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2017. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISSN 1020-0959 (print) ISSN 1682-7678 (online) Macroeconomic implications of financial imperfections: a survey Stijn Claessens and M. Ayhan Kose Abstract 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.
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