Quarterly Review 2134

Macroeconomics With Frictions

S. Rao Aiyagari

Summer 1997

This article is a progress report on research that attempts to include one type of market incompleteness and frictions in macroeconomic models. The focus of the research is the absence of insurance markets in which individual-specific risks may be insured against. The article describes some areas where this type of research has been and promises to be particularly useful, including consumption and saving, wealth distribution, asset markets, business cycles, and fiscal policies. The article also describes work in each of these areas that was presented at a conference sponsored by the Federal Reserve Bank of Minneapolis in the fall of 1993.

Reprinted From: Quarterly Review (Vol. 18, No. 3, Summer 1994, pp. 2-40)

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