Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212366 
Year of Publication: 
2016
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 28/2016
Publisher: 
Bank of Finland, Helsinki
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.
JEL: 
C78
E44
E51
F41
F42
G01
G15
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-135-1
Document Type: 
Working Paper

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