Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89090
Authors: 
Fernandez, Andres
Herreno, Juan
Year of Publication: 
2013
Series/Report no.: 
IDB Working Paper Series IDB-WP-390
Abstract: 
Financial crises in both emerging and developed economies have been characterized by large output drops and spikes in unemployment and interest rates. To account for these stylized facts this paper builds a business cycle model where financial and labor market frictions interact as occasionally binding borrowing constraints and search frictions. The model is calibrated to a Sudden Stop-prone emerging economy and also to some peripheral European economies in the recent crisis. The model accounts for unemployment dynamics both during crises and at regular business cycle frequencies. The paper also assesses the welfare implications of policies that reduce real minimum wages during crises.
JEL: 
E32
E44
F41
Document Type: 
Working Paper

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