2023
DOI: 10.1146/annurev-financial-110921-112053
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Macro-Finance Models with Nonlinear Dynamics

Winston Wei Dou,
Xiang Fang,
Andrew W. Lo
et al.

Abstract: We review macro-finance models featuring nonlinear dynamics that have recently been developed in the literature, including models with funding liquidity constraints, market liquidity frictions, and bank run frictions, and discuss the empirical evidence and challenges of this class of models. We also construct an illustrative model featuring financial frictions and nonlinear dynamics for readers who are unfamiliar with the literature. We solve the model using different solution techniques, including both global… Show more

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