International propagation of financial shocks in a search and matching environment

Marlene Isore

    Research output: Working paperDiscussion paperScientific

    Abstract

    This paper develops a two-country model in which transmission of financial shocks arises despite a flexible exchange rate regime and substitutable financial assets, contrary to the open-economy literature results under these two conditions. The search and matching approach first accounts for the time needed to restore normal functioning of financial markets following a disruption. It also allows dissociating two types of financial shocks: (i) pure liquidity contractions imply negative co-movements of home and foreign outputs, so that the model nests the standard open macroeconomy results as a particular case; (ii) shocks to banks’ capitalization costs in one country do generate international financial contagion.
    Original languageEnglish
    Place of PublicationHelsinki
    PublisherBank of Finland
    Number of pages52
    ISBN (Electronic)978-952-323-135-1
    Publication statusPublished - 2016
    MoE publication typeD4 Published development or research report or study

    Fields of Science

    • 511 Economics

    Cite this

    Isore, M. (2016). International propagation of financial shocks in a search and matching environment. (Bank of Finland Research Discussions Papers; No. 28/2016). Helsinki: Bank of Finland.