Finnish paper rethinks transmission of financial shocks

The Bank of Finland

A working paper published by the Bank of Finland presents a new approach to modelling the effect of financial shocks on open economies.

In International Propagation of Financial Shocks in a Search and Matching Environment, Marlène Isoré develops a two-country model in which transmission of financial shocks occurs "despite a flexible exchange rate regime and substitutable financial assets".

This, the author notes, is contrary to the standard result under these conditions in the open-economy

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