The article explores how financial frictions, capital regulation, and fiscal policy impact business cycles. The researchers developed models to study these effects and found that financial frictions play a significant role in explaining economic data. They also discovered that macroprudential policies can help stabilize the economy and improve welfare. Additionally, the degree of substitutability between production factors influences the stability of a balanced-budget rule. Overall, the study highlights the importance of understanding financial mechanisms in shaping economic fluctuations.