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Economic Quarterly

Third Quarter 2012

When Do Credit Frictions Matter for Business Cycles?

Felipe F. Schwartzman

Since the Great Recession there has been renewed interest in introducing credit frictions in business cycle models. However, in order for credit frictions to be quantitatively meaningful and qualitatively realistic in business cycles, it is necessary to depart from conventional assumptions about production technology or preferences and/or add additional frictions. This article reviews some of those departures and additions.

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