I analyze efficient government interventions to mitigate financial distress during a severe macroeconomic downturn. At the macroeconomic level, the key variable is the gap between the real wage and the shadow cost of labor. This gap is large when unemployment is high. At the micro level,...

We propose a model to identify the causes of rising profits and concentration, and declining entry and investment in the US economy. Our approach combines a rich structural DSGE model with cross-sectional identification from firm and industry data. Using asset prices, our model estimates the...

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...