Citation

Discussion Paper Details

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Title: Macro, Money and Finance: A Continuous Time Approach

Author(s): Markus K Brunnermeier and Yuliy Sannikov

Publication Date: June 2016

Keyword(s): (Inside) Money, Endogenous Risk Dynamics, Financial Frictions, Macroeconomic Modeling, Monetary Economics, Paradox of Prudence and Volatility Paradox

Programme Area(s): Financial Economics, International Macroeconomics and Finance and Monetary Economics and Fluctuations

Abstract: This paper puts forward a manual for how to set up and solve a continuous time model that allows one to analyze endogenous (1) level and risk dynamics. The latter includes (2) tail risk and crisis probability as well as (3) the Volatility Paradox. Concepts such as (4) illiquidity and liquidity mismatch, (5) endogenous leverage, (6) the Paradox of Prudence, (7) undercapitalized sectors (8) time-varying risk premia, and (9) the external funding premium are part of the analysis. Financial frictions also give rise to an endogenous (10) value of money.

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Bibliographic Reference

Brunnermeier, M and Sannikov, Y. 2016. 'Macro, Money and Finance: A Continuous Time Approach'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11329