International Propagation Of Financial Shocks In A Search And Matching Environment

This paper develops a two-country multi-frictional model where the freeze on liquidity access to commercial banks in one country raises unemployment rates via credit rationing in both countries. The expenditure-switching channel, whereby asymmetric monetary shocks traditionally lead to negative comovements of home and foreign outputs, is considerably weakened via opposite forces driving the exchange rate. Meanwhile, it is proved that financial market integration forms a transmission channel per se, without resorting to international cross-holdings of risky assets.

Provided by: Austrian Institute of Economic Research Topic: CXO Date Added: Apr 2011 Format: PDF

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