Credit market imperfection, financial market globalization, and catastrophic transition

Over the past two decades a substantial body of research has been developed to investigate macroeconomic implications of credit market imperfection. These studies have demonstrated that credit market imperfection can be responsible for a)propagation, amplification, and persistence of macroeconomic shocks to fundamentals (as in [7,9,12]); (b)the indeterminacy of equilibria, which can lead to endogenous, self-fulfilling, expectations-driven business cycle fluctuations (as in [21,5,6,4]); c)the persistence of volatility (as in 10,17,18]); and (d)the magnification of between and within country income inequality (as in [15,16]). The main goal of the present paper is to contribute to our understanding by offering new insights about the macroeconomic implications of credit market imperfection.