Macro, Money and Finance: A Continuous Time Approach

Markus K. Brunnermeier; Yuliy Sannikov

doi:10.3386/w22343

Macro, Money and Finance: A Continuous Time Approach

Markus K. Brunnermeier & Yuliy Sannikov

Working Paper 22343

DOI 10.3386/w22343

Issue Date June 2016

This paper puts forward a teaching manual for how to set up and solve a continuous time model that allows one to analyze endogenous (1) level and risk dynamics. The latter includes (2) tail risk and crisis probability as well as (3) the Volatility Paradox. Concepts such as (4) illiquidity and liquidity mismatch, (5) endogenous leverage, (6) the Paradox of Prudence, (7) undercapitalized sectors (8) time-varying risk premia, and (9) the external funding premium are part of the analysis. Financial frictions also give rise to an endogenous (10) value of money.

This article was written for the Handbook of Macroeconomics. We are grateful to comments by various participants of the Princeton Initiative: Macro, Money and Finance, and especially to Zhiguo He, Lunyang Huang, Ji Huang, Falk Mazelis, Sebastian Merkel, Greg Phelan, and Christian Wolf, as well as to the editors John Taylor and Harald Uhlig. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

Markus K. Brunnermeier
Disclosures 2015-

As a guiding principle I follow the NBER Research Disclosure Policy: http://www.nber.org/researchdisclosurepolicy.html

To date, no single relationship (other than my salary form Princeton University) has accounted for more than 10 percent of my aggregate annual income in that year.

Significant Remunerated Activities:

Speaking engagements and lectures

Central banks

ECB, ESRB, Bundesbank (Research Council), Bank of Korea (Keynote presentation), Bank of England, National Bank of Austria, Swiss National Bank, Bank of Japan, Federal Reserve, New York Fed, Bank of Canada, Bank of Chile, Bank of Korea

International financial institution

IMF

Academic Organizations

Swiss Finance Institute, 2012-

No expert testimony for law suits or paid consulting work for private cooperation to date.

Research Grants:

Sloan Foundation 2011-12

Guggenheim Fellowship, 2010-11

INQUIRE Europe, Research Grant

Visiting Scholar and Other:

Milton Friedman Institute, visiting scholar 2011

American Economic Review, Journal of Finance, Associated Editorship

Significant Non-Compensated Activities:

American Finance Association: Director

Financial Advisory Roundtable and Monetary Policy Panel, Federal Reserve Bank of New York, 2006 – present

INET Advisory Board Member, 2009 – present
MARC RIS BibTeΧ

Macro, Money and Finance: A Continuous Time Approach

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