Financial Frictions in Macroeconomics: Key to Understanding Global Economic Crises.
The current model of macroeconomics doesn't fully explain major events like the 2008 financial crisis because it overlooks the role of financial frictions. These frictions can lead to big shocks with lasting effects, repeated downturns, and challenges for monetary policy. By incorporating financial frictions into the model, we can better understand how the economy works and make more effective policy decisions.