Financial Frictions Trigger Economic Booms and Busts, Study Finds
The article explores how problems in the financial sector can affect the real economy. By using a model that considers non-linear relationships, the researchers found that constraints on banks' capital can have a big impact on economic cycles. This model, based on Italian data, shows that traditional linear models can't capture the ups and downs of real-world economies. The researchers also discuss how certain policies can help smooth out these economic fluctuations.