Introduction to Macroeconomics and Financial Frictions

Undergraduate / Graduate

This course studies the behavior of consumers, investors, and firms when they face frictions to take their decisions. These frictions can be in the form of costs to change portfolios, to change prices, or to find another investor to trade. Frictions also appear in the form of borrowing costs, the possibility of default, or the need to use money to carry on transactions. We show how taking into account these frictions change predictions about the economy. Borrowing constraints, for example, affect interest rates, and the need to rebalance portfolios changes predictions on optimal taxation. We discuss models, techniques and papers that show the relevance of frictions for economic analysis.