How do financial frictions affect the response of an economy to aggregate shocks? In this paper, we address this question, focusing on liquidity constraints and uninsurable idiosyncratic risk. We consider a search model where agents use a liquid asset to smooth individual income shocks. We show...

Over the last fifteen years, emerging economies have been exposed to severe episodes of financial crises. In the mean time, an increasing share of investments is delegated to mutual funds. In this paper, we propose a small open-economy model where international investors hire fund managers to...

with financially constrained agents.