International Transmission of Financial Shocks without Financial Integration

Ryoji Ohdoi

MPRA Paper from University Library of Munich, Germany

Abstract: This study analyzes how financial shocks in one country transmit to another country through international trade. To this end, it develops a dynamic general equilibrium model of two-country Ricardian trade with a continuum of goods. Financial frictions exist in each country and the two countries can be asymmetric in terms of the degree of frictions, which can be a novel source of comparative advantage. In the case of a permanent credit crunch, we can analytically show that such a shock reduces the long-run investment, GDP, wage income, and aggregate income of heterogeneous entrepreneurs in both countries. We also numerically investigate the transitory responses to a temporal credit shock and show that such an internationally synchronized economic downturn is also observed during transition periods.

Keywords: Financial Frictions; Dynamic Ricardian Trade with a Continuum of Goods; Heterogeneous Agents; Asymmetric Countries; Credit Crunch (search for similar items in EconPapers)
JEL-codes: E22 E32 E44 F11 F44 (search for similar items in EconPapers)
Date: 2017-12
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-mac and nep-opm
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https://mpra.ub.uni-muenchen.de/83286/1/MPRA_paper_83286.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/86163/9/MPRA_paper_86163.pdf revised version (application/pdf)

Related works:
Journal Article: International transmission of financial shocks without financial integration (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:83286

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