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| Author: | Hall, R.E. |
| Title: | The high sensitivity of economic activity to financial frictions |
| Journal: | Economic Journal
2011 : MAY, VOL 121:552 p. 351-378 |
| Index terms: | companies consumers consumer durables housing capital costs |
| Language: | eng |
| Abstract: | A financial friction is a wedge between the return received by providers of financial capital - ultimately, consumers - and the cost of capital paid by businesses and consumers who use capital. In this article two frictions are studied. One raises the rental cost of capital to companies and the other raises the rental cost of housing and durable goods to consumers. The focus is on the effects of financial frictions; the magnitudes of the frictions are dealt as given. Thus, the results complement an active recent literature that explains the intensification of financial frictions in a crisis. It is found that financial frictions are powerful determinants of economic activity. |
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