China Journal of Economics

2025, v.12;No.47(03) 1-36

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Macro-finance Review

Yingzi Zhu;Shangqing Yang;

Abstract:

In the review article, we focuses on the intersection of macroeconomics and financial frictions, offering a systematic overview of how such frictions are incorporated into dynamic stochastic general equilibrium(DSGE) models. We examine how agency problems and information asymmetries give rise to credit constraints, liquidity limits, financial intermediation, and asset-price channels that jointly shape macro-financial fluctuations and systemic risk. The article highlights amplification mechanisms—such as the financial accelerator, the liquidity spirals and financial intermediary constraints—and clarify their micro-foundations based on contract theory. Based on the macro-finance foundation, we then review the development of consumption-based, investment-based(q-theory), production-based, and intermediary-based Asset Pricing models, emphasizing the links between macro-structural models and the development of asset pricing models. The paper outlines the modeling frameworks and evolutionary paths of macro-financial theories and microeconomic mechanisms, with an emphasis on theoretical and intuitive construction but not model calibration and empirical details, hence offering direct insights for modeling issues relevant to China.

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Authors: Yingzi Zhu;Shangqing Yang;

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