Financial crises increase impact of financial frictions on global economy.
The article examines how financial problems impact the economy during crises in Canada, the Euro Area, the U.K., and the U.S. The researchers used a method called DSGE to study this. They found that financial issues play a bigger role in causing economic ups and downs during crises. Financial problems and shocks affect the economy through investment. In the global financial crisis, financial issues had a bigger impact on investment.