Macro-Finance Linkages

Abstract

In this survey, I review the academic and policy-oriented literature on the linkages between financial markets and the rest of the economy. The survey begins with the leading economic theories for why the financial sector can influence the macroeconomy. Second, I consider the empirical research on spillovers from the financial sector to the rest of the economy, as well as across financial markets in different countries. Third, I discuss key policy debates surrounding macro-finance linkages. The survey concludes with a summary of major gaps in the existing literature.

Keywords: Global Financial Crisis, financial accelerator, contagion, monetary policy

JEL Classification: E32, E44, E58