We develop a canonical framework to think about credit market frictions and aggregate economic activity in the context of the current crisis. We use the framework to address two issues in particular: first, how disruptions in financial intermediation can induce a crisis that affects real...

This paper incorporates banks and banking panics within a conventional macroeconomic framework to analyze the dynamics of a financial crisis of the kind recently experienced. We are particularly interested in characterizing the sudden and discrete nature of the banking panics as well as the...