Introducing Systemic Financial instability into macroeconomics: how to meet the challenge?

In times of systemic financial instability the behaviour of the macroeconomy changes fundamentally, in that both the volatility of financial shocks and the way they are transmitted through the economy change regime. This is the result of one empirical contribution to a novel literature that tries to incorporate systemic financial instability, and with it the lessons of centuries of financial crises, into standard macroeconomic models. The lead article in this issue of the Research Bulletin first reviews this literature and then presents the building blocks of the above contribution, including what it takes to empirically represent systemic financial instability. JEL Classification: E0