IMF study on financial frictions in EMEs


An International Monetary Fund study, published in June, shows financial frictions play a more prominent role in explaining cyclical fluctuations in developing economies than in emerging markets.

Fernando Alvarez-Parra, Luis Brandao Marques and Manuel Toledo, the paper's authors, examine how durable goods and financial frictions shape the business cycle of a small, open economy.

The results show that financial frictions are important in explaining strong countercyclical trade balances and how

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