Macro, Money and Finance: A Continuous Time Approach

Markus Brunnermeier and Yuliy Sannikov

No 11329, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Macroeconomic modeling; Monetary economics; (inside) money; Endogenous risk dynamics; Volatility paradox; Paradox of prudence; Financial frictions (search for similar items in EconPapers)
JEL-codes: C63 E32 E41 E44 E51 G01 G11 G20 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Working Paper: Macro, Money and Finance: A Continuous Time Approach (2016)
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