Indeed we know that the nonlinearity implied by financial constraints can generate multiple equilibria, with the further possibility that non-fundamental shocks (so-called sunspots) can generate large economic fluctuations. In this regard, further research on non-linear solution techniques should have high priority in the economic profession’s research agenda.
The current financial crisis has certainly offered strong arguments to convince the sceptics that financial markets must not be neglected. The crisis has also taught us that another usually neglected market, the money market, is claiming its right to belong in business cycle models.