Financial frictions have become fundamental for studying the business cycle and credit market dynamics. This work adds to the existing literature by introducing a search and matching scheme in the financial market into a cash in advance New Keynesian DSGE theoretical model. We provide an...

The theoretical literature on business cycles predicts a positive investment response to productivity improvements. In this work we question this prediction from theoretical and empirical standpoints. We first show that a negative short-term response of investment to a positive technology shock...