Finance

When firms and financial intermediaries are credit constrained any change in their relative wealth will affect interest rates and aggregate investment. Also, when hit by a shock such as a credit crunch, capital constrained firms will be the ones affected the most.

Holmstrom & Tirole (1997) Quarterly Journal of Economics

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Macro & Trade

Since the creation of the World Trade Organization (WTO), emerging economies have increased their use of temporary trade barriers against trading partners (such as anti dumping, safeguards, and countervailing duties) to deal with negative exchange rate shocks. This despite the fact that many of these economies had considerable freedom under the WTO to raise trade tariffs more generally.

Bown et al. Journal of Development Economics (2014)