Macro, Money and Finance: A Continuous Time Approach

Markus K. Brunnermeier, Yuliy Sannikov

NBER Working Paper No. 22343
Issued in June 2016
 

This paper puts forward a teaching 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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Markus K. Brunnermeier, Yuliy Sannikov 均为普林斯顿大学经济系教授，Yuliy Sannikov 为2015年美国金融学会费雪布莱克奖、2016年美国经济学会克拉克奖得主