Mark Gertler and Peter Karadi’s paper is the most recent paper in a string of papers that Gertler with a number of coauthors, notably Peter Karadi and Nobu Kiyotaki, has written. All of these papers are attempts to incorporate financial frictions into quantitative macroeconomic models. These attempts are to be applauded vigorously. If we are to make serious advances in understanding the role of financial frictions, we have no choice but to pursue an agenda like the one set out in these papers: take a stand on the
nature of financial frictions, incorporate them into quantitative general
equilibrium models, confront the models and discipline them with macroeconomic and microeconomic data, and use the models to answer a variety of policy questions.[...]