Economics, Econometrics and Finance
4 years ago

Financial Frictions in Small Open Economy Model Impact Unemployment Rates

SSRN Electronic Journal
Introducing Financial Frictions and Unemployment into a Small Open Economy Model
Lawrence J. Christiano, Mathias Trabandt, Karl Walentin

Paper Summary

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The article introduces financial frictions and unemployment into a model of a small open economy. The researchers aim to understand how these factors affect the economy. They find that financial frictions can amplify the impact of shocks on the economy, leading to higher unemployment rates. This suggests that policies targeting financial stability could help reduce unemployment in small open economies.