This article surveys the macroeconomic implications of financial frictions. Financial frictions lead to persistence and when combined with illiquidity to non-linear amplification effects. Risk is endogenous and liquidity spirals cause financial instability. Increasing margins further restrict...

We propose a measure for systemic risk: CoVaR, the value at risk (VaR) of the financial system conditional on institutions being under distress. We define an institution's contribution to systemic risk as the difference between CoVaR conditional on the institution being under distress and the...