A growing literature on information imperfections, credit markets and non-Walrasian outcomes poses a significant challenge to traditional approaches in economics. This book unifies key aspects of these challenges in the formulation of a new macroeconomic paradigm. Its validity is tested using data on Japan, one of the biggest empirical challenges to the "old" paradigm. In the process, a contribution is made towards a better understanding of the many "puzzles" or "anomalies" of the Japanese economy of the past decades. However, the new approach is applicable far beyond Japan.